Best Practices in Real Property Management\
in State Governments

GSA Office of Governmentwide Policy

Office of Real Property

**Foreword**

On behalf of the Administrator of the General Services Administration,
the Office of Governmentwide Policy and the Office of Real Property, I
am pleased to issue *Best Practices in Real Property Management in State
Governments.* This report offers details on innovative, best practices
in operation at the state level, with the intent that sharing these
practices may lead to creative, new approaches throughout other levels
of government.

I would like to recognize David Bibb, Deputy Associate Administrator for
the Office of Real Property, whose staff undertook this research effort.
Under the guidance of Marjorie Lomax, Director of the Evaluation and
Outreach Division and Team Leader Andrea Wohlfeld Kuhn, the project team
consisted of Dennis Goldstein, Sheldon Greenberg, Robert Harding,
Jonathan Herz, and Rebekah Pearson. I would like to commend George
Washington University's Department of Public Administration for their
role in the project, particularly Dr. Kathryn Newcomer, Principal
Investigator, and Robin Kane and Howard Smith, Research Associates.

Most importantly, we would like to recognize the contributions from
experts at the state level who provided extensive information and
first-hand knowledge of best practices in their states. Their
participation enabled us to provide examples of best practices at the
state level.

G. Martin Wagner

Associate Administrator

Office of Governmentwide Policy

U.S. General Services Administration

**Table of Contents (GRAPHICS ADD PAGE #'s)**

Executive Summary

I.  Acquisition & Construction

    A.  Design & Construction Services

        i.  Maryland's Smart Growth

        ii. Minnesota's Integrated Predesign/Budgeting Process

        iii. Utah's Value-Based Selection Process (VBS)

    B.  Leasing

        i.  Maryland's Procurement Law

        ii. Minnesota's Mixed System

        iii. Utah's RFP System

II. Operations & Maintenance

    A.  Facility Assessment & Preventive Maintenance

        i.  Michigan's Maintenance Excellence Program

        ii. Missouri's Maintenance Software and Evaluation

        iii. Utah's Capital Facilities Assessment

        iv. Utah's Preventive Maintenance Audits

III. Web-enabled Software

     A.  Leasing

     B.  Planning & Construction

         i.  Washington's Public Works Bidding Process

         ii. Capital Assets Planning System in Texas

         iii. Construction Project Management System in Texas

     C.  Maintenance & Management

         i.  Buildings on a Disk

         ii. Facility Assessment in Texas

         iii. FacilityCenter™ in Texas

         iv. Michigan's Maintenance Excellence Program

     D.  Feedback & Internal Communications

IV. Public-Private Partnerships

    A.  Arizona's Privatized-Lease-to-Own (PLTO) System

    B.  Washington State's Land Swap

    C.  Washington's Lease Development Proposal

    D.  Maryland & Minnesota

Appendix 1: Methodology

Appendix 2: Acquisition & Construction

A.  Design & Construction Services

    a.  Maryland's Smart Growth

    b.  Minnesota's Integrated Predesign/Budgeting Process

    c.  Utah's Value-Based Selection Process (VBS)

    d.  Maryland's Special Roofing Team

B.  Leasing

    a.  Maryland's Procurement Law

    b.  Minnesota's Mixed System

C.  Creative Building and Leasing in Action

D.  Construction Budgeting & Funding Processes

    a.  Maryland

    b.  Minnesota

    c.  Utah

E.  Customer Feedback

F.  Other Factors

G.  New Ideas in Leading States

H.  Relevant Web Sites

I.  Contacts

Appendix 3: Operations & Maintenance

A.  Facility Assessment & Preventive Maintenance

    a.  Michigan's Maintenance Excellence Program

    b.  Missouri's Maintenance Software and Evaluation

    c.  Utah's Capital Facilities Assessment

    d.  Utah's "Campus versus Shops" System

    e.  Other Systems

B.  Budgeting & Funding Process

    a.  Michigan

    b.  Missouri

    c.  Utah

C.  Feedback

    a.  Missouri

    b.  Utah

D.  Relevant Web Sites

E.  Contacts

Appendix 4: Web-enabled Software

A.  Planning & Construction

    a.  Washington's Public Works Bidding Process

    b.  Capital Assets Planning System in Texas

B.  Maintenance & Management

    a.  Buildings on a Disk

    b.  FacilityCenter™ in Texas

C.  New Ideas

D.  Relevant Web Sites

E.  Contacts

Appendix 5: Public-Private Partnerships

A.  Arizona's PLTO System

B.  Washington's Land Swap

C.  Relevant Web Sites

D.  Contacts

Appendix 6: Office of Real Property Publication Survey

######### Executive Summary

***Imagine*** a rooftop ice pond system that freezes water at night and
blows air across it by day to provide the primary source of air
conditioning. Then...imagine grass growing on other portions of the
roof, for use as insulation and as a storm water measure. The building
also stores storm water, pumps it to the roof, and then uses it to flush
the toilets.

***Imagine*** finding all maintenance materials for a building on a
CD-ROM, complete with links to drawings, manuals, etc.

***And then...***imagine trading in your existing property with its
outmoded facilities for a new site with facilities built to your
specifications, valued at twice the value of your original property.

***Imagine and now acknowledge*** that each of these scenarios are real
and exist as a result of innovative best practices undertaken by states
throughout the country.

These are only a few of the innovative practices you'll find detailed
within this study. You'll find more details about Maryland's Smart
Growth program and movement to create "green" buildings. Washington's
"Buildings on a Disk" system that provides maintenance information
electronically is explained. The unheard of real estate transaction in
Washington, which turned a \$4.8M asset into one worth at least \$9.5M
is detailed within. Each of these practices is further highlighted
within this report, with more detailed specifics in the appendices.
Additionally, an explanation of the methodology employed in determining
best practices and states is found in Appendix I.

The following states were chosen as exemplars in the following study
areas:

-   **Acquisition and Construction (Maryland, Minnesota, Utah)**

-   

-   **Operations and Maintenance (Michigan, Missouri, Utah)**

-   

-   **Web-Enabled Software (Texas, Washington)**

-   

-   **Public-Private Partnerships (Arizona, Washington)**

**I. ACQUISITION & CONSTRUCTION**

These states have integrated processes for determining statewide
priorities for limited capital development resources. In the area of
leasing, the three states all have centralized most leasing functions in
one agency. Officials in the three states identified the following key
practices as instrumental to their success.

**[A. Design and Construction]{.underline}:**

-   Maryland's Smart Growth System chooses projects that reflect its
    commitment to advancing most growth within central business
    districts while protecting green space and rural areas.

-   Minnesota's Integrated Predesign and Budgeting Process uses a
    hierarchy of tools that integrate the process into the Capital
    Budget System from predesign through occupancy.

-   Utah's Value-Based Selection (VBS) uses a combination of factors in
    choosing construction contractors, including qualification, past
    performance, on-time delivery history, and others, in addition to
    price.

**[B. Leasing]{.underline}:**

-   Maryland's Procurement Law guides the acquisition of leasehold
    interests, encouraging competitively solicited proposals and a
    system of ranks and scores.

-   Minnesota's Mixed System functions by having the central state
    leasing agency work collaboratively with the requesting agencies in
    a system that often uses competitive bids.

-   Utah's Request for Proposal (RFP) System works by having the
    responsible state leasing agency work with the requesting agency to
    develop an RFP, and choose the winning bid not on lowest bid but
    rather on the best property within the allotted budget.

**II. OPERATIONS & MAINTENANCE**

The practices identified by state leaders as influential in their
success are the following:

-   Michigan's Maintenance Excellence Program is based on a
    sophisticated software program, MAXIMO, which has coordinated nine
    project teams into a proactive maintenance program.

-   Missouri's Maintenance Software and Evaluation System uses a new
    software program, MS 2000, to coordinate numerous maintenance
    functions.

-   Utah's Capital Facility Assessment features a comprehensive program
    to assess the maintenance needs of facilities, including a
    three-year survey of nearly all of the state's property.

-   Utah's Preventive Maintenance Audits set minimum maintenance
    standards for all agencies in the executive branch, and conduct
    audits to determine whether those standards are being met.

**III. WEB-ENABLED SOFTWARE**

Compared to the practices of acquisition, construction, operations and
maintenance described above, fewer states are pursuing innovative
practices in the use of web-enabled software. Experts hypothesized that
this may be due to an early focus by states in developing Internet
applications for agencies that deliver services directly to citizens
rather than for internal purposes.

Washington and Texas use web-enabled software to assist in leasing,
planning and construction, and maintenance. The following is a list of
practices highlighted by state officials.

**[A. Leasing]{.underline}:**

-   Washington State's Leasing program uses software for solicitation
    outreach and to maintain a Lease Inventory System database of all
    property leased from the private sector.

**[B. Planning and Construction]{.underline}:**

-   Washington's Public Works Bidding Process uses an advanced web-based
    software system called FastBid to streamline the process for
    soliciting public works construction bids.

-   Texas' Capital Assets Planning uses VFA Facility software for
    strategic purposes to plan capital projects and construction, and to
    construct project proposals used in formal requests for funding.

-   Texas' Construction Project Management System uses Expedition
    software to manage construction projects, including bids,
    specifications, expenditures, contracts, and more.

**[C. Maintenance and Management]{.underline}:**

-   Washington's Building on a Disk gathers all operations and
    maintenance information for a facility on a single CD-ROM (which
    could also be available on an Intranet), providing a snapshot of all
    maintenance materials for the building.

-   Texas' Facility Assessment creates a baseline of the agency's needs
    and facilities to utilize all its other software programs for
    maintenance and construction.

-   Texas' FacilityCenter uses a single software system to order
    materials, handle lease management, manage maintenance and
    operations, and produce work orders.

IV. **PUBLIC- PRIVATE PARTNERSHIPS**

There are three practices described in these two states.

-   Arizona's Privatized Lease-to-Own (PLTO) System pays for new
    state-owned buildings without upfront funding or state-backed bonds.
    The system saves state money in both the short- and long-terms, and
    gives the state a multi-million dollar asset at the end of a 25-year
    lease.

-   Washington State's Land Swap involved the state patrol exchange of
    an old light-industrial facility and property appraised at under \$5
    million in exchange for new property with newly built facilities
    worth nearly \$10 million through a unique process with a private
    developer.

-   Washington State's Lease Development Proposal implements a new
    method in which developers can respond to an RFP by submitting a
    proposal to build on state-owned land.

***Many of these innovative and best practices have resulted in
streamlined operations, cost savings, innovative solutions to complex
problems, etc. They offer new ideas for real property management. We
hope that these best practices will inspire you to take a new look at
your asset management practices and enhance or perhaps develop new
management approaches. While the findings in this report reflect best
practices identified by state real property organizations, their
applicability at the Federal level will vary depending on many factors,
such as enabling authorities and legislation, current fiscal/budgetary
limitations, operating policies and procedures or other
considerations.***

[I. ACQUISITION & CONSTRUCTION]{.underline}

***Introduction:***

States that are exemplars in the acquisition of real property typically
have integrated processes for determining statewide priorities for
limited capital development resources. State planning is coordinated
across multiple agencies, sometimes directed by the department or agency
with day-to-day responsibility for real property management, sometimes
directed by a central planning board. State capital decisions are based
on structured scoring models that take strategic priorities into
account. All three states centralize most leasing functions in one
agency.

Design and Construction best practices include:

-   Maryland's Smart Growth system

-   Minnesota's integrated predesign and budgeting process

-   Utah's Value-Based Selection (VBS) system

Leasing best practices include:

-   Maryland's procurement law

-   Minnesota's mixed leasing system

-   Utah's RFP system

This section also highlights cost savings due to the practices above.

**A. DESIGN & CONSTRUCTION SERVICES**

######## [Maryland's Smart Growth]{.underline}

Maryland has instituted a wide-ranging program to foster "smart growth"
in the state. From purchasing property to leasing private space, the
state chooses projects that reflect its commitment to advancing most
growth within central business districts while protecting green space
and rural areas. In recent years, the state has purchased and protected
more land than it has developed, according to the Office of Real Estate
in the Maryland Department of General Services (DGS).

According to one official, the state "achieves smart growth goals
through competitive means." In order to achieve these goals, the state
has created a smart growth checklist. This list is publicly available
and offers private proposers in real property transactions an
opportunity to win points by creating proposals that incorporate smart
growth ideas. These could include projects such as remodeling
underutilized buildings within central business districts of older
communities that have declined.

Maryland's Green Buildings program:

-   Offers guidelines to the private sector regarding the types of
    buildings most likely to lure state agency rentals.

-   Uses the U.S. Green Building Council's Leadership in Energy and
    Environmental Design (LEED) criteria for green buildings. (See
    <http://www.usgbc.org/LEED/leed_main.asp> for further information).

-   Criteria begin with the site, where points are given for buildings
    in areas that will not require new infrastructure, sewers, roads,
    etc.

-   Outline criteria in a range of areas such as HVAC systems, energy
    efficiency, and the use of recycled materials in wallboard.

-   Allows the private sector to bring green buildings to the state for
    leasing and therefore increases the state inventory of more
    sustainable buildings.

-   Remains flexible as to the specifics.

Through its Green Building program, the state realizes significant cost
savings through better energy and resource management. Operating
overhead will be lower in these buildings. While some argue that
constructing green buildings increases costs, the state has negotiated
leases in green buildings at or below market rates.

The Maryland Energy Administration also offers low- or no-cost loans for
energy efficiency projects. The Facilities Planning, Design and
Construction division of DGS recently completed a \$19 million remodel
of an entire physical plant of one building; it will be paid back in
full through energy savings during a maximum of 15 years. The contractor
guarantees the energy savings, so that if the energy savings do not meet
expectations, the contractor pays the difference.

See Appendix 2: Maryland's Smart Growth for more information.

######## [Minnesota's Integrated Predesign/Budgeting Process]{.underline}

Minnesota has instituted an integrated system for budgeting, designing
and building capital projects. Beginning at the top, the hierarchy of
tools in this process includes:

-   Capital Budget System (CBS)

-   Predesign Manual,

-   Design Guidelines

-   Design-Bid-Build delivery method for construction projects.

The Department of Administration's Division of State Building
Construction (DSBC) leads this effort from predesign through occupancy.

By statute, the state requires that agencies submit a predesign document
to the Department of Administration for all new construction or major
remodeling project requests. The state assesses the need, cost, scope
and schedule of the project, all of which is then subsequently used in
the Capital Budget System. The state initiated this integrated system in
the mid 1990's, with capital projects requests on even-numbered years.

Along with the Department of Finance, which manages the CBS, the
Department of Administration reviews and comments on all capital
requests. Agencies may then clarify or correct their proposals, based on
those comments. The DSBC focuses on predesign issues, commenting on cost
and program regarding architecture and construction. Ideal predesign
documents include all items required under the CBS system, such as
linking capital projects to an agency's strategic plan.

Under current law, the state uses a traditional project delivery method:
Design-Bid-Build. With legislative pre-approval, the state may under
limited circumstance utilize a Design-Build method. For example, the
state might seek such a method if there is a time deadline tied to a
lease, or other critical need.

Minnesota's stringent predesign requirements likely save the state money
by averting errors during design and construction. However, the agency
has not yet quantified such savings.

See Appendix 2: Minnesota's Integrated Predesign/Budgeting Process for
more information.

**[Utah's Value-Based Selection Process (VBS)]{.underline}**

Utah has switched to using a value-based selection (VBS) system to
choose architects, engineers and contractors for design and construction
services. Under the previous process, the state used a low-bid model of
selection for construction contractors (but not for architects and
engineers). Under VBS, the state weighs a combination of factors for
construction contractors, including qualification, past performance,
on-time and on-budget delivery, prior litigation against the state, and
price. The state also rates the proposal based on which subcontractors
and superintendents the general contractor proposes.

When Utah previously chose contractors by the lowest bid, the state
often suffered financial costs due to wasted time, poor quality of
workmanship, and additional administrative work involved in solving
problems created by substandard contractors. Project superintendents
were sometimes inexperienced in handling large, complex projects.

Utah's Value-Based Selection (VBS) system for procuring construction
saves the state money. For example, although the state may pay \$10,000
to \$15,000 more for a project that uses a higher-quality subcontractor,
the state saves more through the improved quality, lower number of legal
claims, and improved on-time delivery rate.

During the previous two years, Utah set aside \$2 million in its capital
improvement money for energy efficiency upgrades and water conservation
projects. Each agency can promote efficiency projects. The state also
hired a design consultant to develop standards for water-saving
landscaping standards during new construction. (The state had previously
implemented a policy for energy efficiency standards that all new
buildings must exceed.)

See Appendix 2: Utah's Value-Based Selection Process (VBS) for further
information.

####### B. LEASING {#b.-leasing .unnumbered}

**[Maryland's Procurement Law]{.underline}**

In 1980, the state legislature placed the acquisition of leasehold
interests under the procurement law system. This tightly controlled
system encourages competitively solicited proposals, which the state
then ranks and scores. Bidders must abide by their offer for a period of
90 days while it is reviewed and ranked, and the property is evaluated.
The proposer with the high point score wins, and then the state enters
"best and final" negotiations with that scorer, to achieve the lowest
rent possible. This unique system involves very little delegation. The
Board of Public Works (i.e., the Governor, Treasurer, and Comptroller)
must approve all state leases.

In Maryland, the state saves money by paying no commission on leases and
negotiates reasonable rents at below market rates. Additionally, the
state negotiates better-than-market deals on option renewals.

See Appendix 2: Maryland's Procurement Law for more information.

**[Minnesota's Mixed System]{.underline}**

Minnesota generally relies on the extensive market knowledge of its
staff to identify appropriate space for state agencies, although it uses
RFPs for leases in some situations.

When seeking leases, agencies send requests to the Real Estate
Management Division of the Department of Administration, based on the
legislative appropriation and the programmatic operations of the agency.
While this division leads the entire leasing process from beginning to
the end, it is a very collaborative effort with the requesting agency.

Steps of Process:

-   Officials with the real estate division meet with representatives
    from the agency to gather details, such as location, amenities,
    number of people in the space, need for public access, and a wide
    range of other issues.

-   The division conducts a comparative market analysis to see what is
    available that would meet the needs, and identifies possible
    properties.

The public notification process for state space needs varies by type of
request, the rental market, and other issues. In most cases, the Real
Estate Management Division will first look at the availability files.
Landlords regularly contact the division to update the files on space
availability. Because the system is centralized, everyone in the
division is extremely knowledgeable of space available in the rental
market. Therefore, the division rarely puts out solicitations for
information in the form of an advertisement.

However, depending on the economy, and for requests larger than
approximately 50,000 square feet, the division might prepare a formal
request for proposals (RFP). In some situations, this might create a
more competitive situation and lead to a better product.

Officials in Minnesota believe that the state's centralized leasing
system generates better rents. The Real Estate Management Division staff
members have expertise in everything from real estate negotiations to
space planning and programs. This expertise helps the division negotiate
better rents and space.

See Appendix 2: Minnesota's Mixed System for more information.

**[Utah's RFP System]{.underline}**

In Utah, the Office of Real Estate and Debt Collection in the Division
of Facilities Construction and Management (DFCM) manages leasing for
virtually all state agencies. It works with the requesting agency to
identify space needs, complies with a space standards book, and then
develops the RFP around the program that will be delivered in the
requested leased space.

After disseminating the RFP, the state chooses a proposal not based on
the lowest bid, but the best property within the allotted budget. One
official said this system "makes for happy, productive employees" in the
new space. Also, by focusing all leasing through one agency, the level
of space and service quality has improved.

Utah owns approximately 60 percent of the property it occupies and
believes that it is generally better to own property than to lease it.

Utah leaders believe their consolidated system of leasing may lower the
state's costs, but they said it is difficult to quantify because the
system has been in effect for many years. Anecdotally, officials
estimated that based on current market and advertised rates, the state
is saving approximately 50 to 75 cents per square foot on its 1.6
million square feet of leased office space.

**Appendix 2** offers more details on:

-   Design & Construction Services

    -   Including: Maryland's Smart Growth, Minnesota's Integrated
        Predesign/Budgeting Process, Utah's Value-Based Selection
        Process (VBS), and Maryland's Special Roofing Team.

-   Leasing

    -   Maryland's Procurement Law and Minnesota's Mixed System.

-   Creative Building & Leasing in Action

-   Construction Budgeting & Funding Processes

-   Customer Feedback

-   Other Factors

-   New Ideas in Leading States

-   Relevant Web Sites

-   Contacts

[II. OPERATIONS & MAINTENANCE]{.underline}

***Introduction:***

While the states highlighted in the Acquisition and Construction section
also have strong capabilities in this practice area, Michigan, Missouri,
and Utah are particular standouts.

Michigan is noted for having a comprehensive approach to the
sustainability practices through its "Maintenance Excellence" program.
The program appears to be analogous to the "National Performance Review"
approach, with teams being constituted in each area to design and
implement reforms.

Several states are notable because they go farther than others to
accurately identify the significant backlog of maintenance on existing
buildings. These states are creating special facilities maintenance
reserve accounts, setting aside earmarked funds to address the problem.
By law, Utah's State Building Board controls a set aside 1.1% of the
total current value of real estate for maintenance. Similar efforts are
underway in Missouri, Iowa, and Minnesota, although those states do not
have legislative requirements.

A summary discussion is provided on the following practices:

-   Michigan's Maintenance Excellence program

-   Missouri's maintenance software and evaluation system

-   Utah's capital facility assessment

-   Utah's preventive maintenance audits

The section also describes some cost savings due to the practices listed
above. As would be expected, the new systems in Utah, Michigan and
Missouri require initial and ongoing investments. At the same time, the
states have all experienced savings due to the advanced operations and
maintenance systems described here. Some savings are quantifiable while
many are not.

Officials in each state used a metaphor of an oil change on a car when
describing the unknown savings their state is reaping. Without regular
oil changes and proper care, an automobile can develop numerous,
sometimes catastrophic problems. If cared for properly with regular oil
changes, an automobile will perform up to its peak. Leaders compared the
preventive maintenance now occurring in these states to properly
changing a car's oil -- it is helping the facilities to function at
their peaks, and is preventing untold problems and associated expenses.

A. FACILITY ASSESSMENT & PREVENTIVE MAINTENANCE

## **Michigan's Maintenance Excellence Program**

Michigan is instituting a comprehensive Maintenance Excellence program
to enhance preventive maintenance and improve its customer service.

[Description of Program:]{.underline}

Using a sophisticated software system called MAXIMO, the program
coordinates nine project teams in order to transform the state's
maintenance program from one that is reactive to one that is pro-active.
These teams are responsible for initiating the following systems,
according to documents from the Michigan Department of Management and
Budget (DMB):

-   Equipment Database -- to provide consistent identification of all
    major equipment and essential data, in MAXIMO and in facility
    records

-   Computer Information System (MAXIMO) -- to implement MAXIMO software
    modules, processes, technology and training

-   Supply Chain Management -- to develop a process to reliably meet
    material supply needs at the right time, with the right quality, at
    the right place and with the lowest total cost

-   Job Plans and Procedures -- to establish a system for documenting
    essential maintenance tasks and procedures

-   Planning and Scheduling -- to redirect the Office of Infrastructure
    Services from a reactive to a proactive maintenance culture

-   Scorekeeping -- to establish a system to measure key internal
    processes and performance outcomes

-   Safety -- to establish essential health and safety programs,
    processes, and training

-   Personnel Development -- to establish competency-based employee
    performance development

-   Maintenance Engineering -- to establish a system for continuous
    quality improvement in maintenance

The software system, personal digital assistants, system-wide training,
and other components entailed significant expenses up front. However,
officials are confident that "it pays for itself in short order" by
creating efficiencies, reducing work and costs over time. They
identified a few key areas of savings and cost improvements based on the
new system.

-   More efficient labor utilization, less reactive work

-   Reduced material and tool costs, because the state will have the
    correct tools in stock and will not buy unnecessary materials

-   Extended asset life due to reduction in premature failures through
    proper maintenance

See Appendix 3: Michigan's Maintenance Excellence Program for more
information.

## 

## **Missouri's Maintenance Software and Evaluation**

Missouri's relatively new computer program was identified as one of the
best management tools in the maintenance of state buildings. The
software program, MS 2000, coordinates numerous maintenance functions.
It includes modules for equipment and parts, equipment maintenance
schedules, preventive maintenance systems, and manuals, and identifies
future inspection and maintenance dates.

Importantly, the software will remind maintenance staff to perform work
assignments. This will improve customer service because maintenance
staff members are often pulled in many directions with numerous work
orders. In the past, some work orders have fallen through the cracks.
The new software program sends reminders to staff until all necessary
information is updated manually into the program.

The building operations team holds comprehensive weekly evaluation
meetings. The team reviews the maintenance status of each state
building, upcoming operations activities based on the computer program,
all electrical systems, housekeeping issues, and more.

The software system has improved the agency's efficiency, cutting down
on administrative overhead. However, one official said it does not
decrease the amount of work the agency does, because now it must conduct
more preventive, pro-active work than before. While the hours spent by
maintenance staff may have simply shifted from reactive to preventive,
the new system certainly improves the impact on tenants. In the past,
mechanical and building failures disrupted tenants, as did the repairs.
Preventive maintenance sharply reduces major system failures, improving
the productivity of the tenants in state-owned buildings. The state has
not formally calculated these savings, officials said.

See Appendix 3: Missouri's Maintenance Software and Evaluation for more
information.

## **Utah's Capital Facilities Assessment**

Utah has implemented an aggressive, comprehensive program to assess the
maintenance needs of its facilities. The Division of Facilities
Construction and Management (DFCM) is responsible for this system.

The state's Capital Facility Assessment included a three-year audit of
nearly all of the state's property. The state paid a third-party team of
engineering and architectural consultants to assess state-owned property
and buildings, document the status of all equipment, and estimate life
expectancies for all properties. The team identified which items need
maintenance or improvement immediately, those that require it within
five years, and those within 10 years.

This conditions assessment now serves as a baseline for future
maintenance and capital improvement decisions for state agencies, and is
used in agency budgeting.

Under the new system, the state is able to prioritize and plan for
upcoming maintenance needs. The entire system will be linked through a
live database.

Leaders in Utah believe the state has already recouped its investment in
its Capital Facility Assessment, especially through the efficiency
opportunities in energy. Mechanical equipment is the largest contributor
to ongoing operations and maintenance costs of a building. When new
buildings are constructed in a more efficient manner or old systems are
replaced with newer, more efficient models, the savings over time are
significant.

The DFCM has average costs of \$3.98 per square foot for operations and
maintenance. Of that amount, \$1.10 is for electricity. Officials said
this is lower than the national average. Over the past three years, DFCM
has captured 5.5 percent savings per year in reduced electricity costs.
This process began three years ago. "We think there is another 10 to 15
percent savings out there," through re-engineering and retrofitting, an
official said.

The state also experiences fewer emergencies. Prior to the launch of the
conditions assessment, maintenance requests were based on observations.
But many facilities managers are not trained engineers, and therefore
could not identify larger system problems before an emergency occurred.
One leader noted that "the new system has improved the quality of
requests; it brings forward the truly needed items." For example, an
agency might request a remodel for its office from the DFCM to solve
some observable problem, but at the same time the mechanical systems are
failing, out of view. The new system allows the DFCM to focus on needs
rather than wants and to prioritize more efficiently.

See Appendix 3: Utah's Capital Facilities Assessment for more
information.

## **Utah's Preventive Maintenance Audits**

In addition to its Capital Facilities Assessment, Utah has a process
whereby it sets minimum maintenance standards for all agencies in the
executive branch and conducts an audit to determine whether the agencies
have created adequate plans to meet these minimum standards. The state
scores each agency on its ability to meet these standards. The DFCM
audits the maintenance practices of executive agencies to ensure they
are scoring properly -- they must score a 90% or better.

Institutions for higher education, which comprise two-thirds of
state-owned property, audit their own abilities to meet the standards.
However, DFCM encourages higher education institutions to invite the
agency to participate in these audits. DFCM then conducts an independent
audit and compares its score to that of the educational institution. The
two then discuss any substantial differences. If the DFCM believes that
the institution's own score is inappropriate to be reported, the DFCM
offers the institution an opportunity to re-evaluate. If the two
continue to disagree, they send both scores to the Building Board.

**Appendix 3** offers more details on:

-   Facilities Assessment & Preventive Maintenance including:

    -   Michigan's Maintenance Excellence Program

    -   Missouri's Maintenance Software and Evaluation

    -   Utah's Capital Facilities Assessment

    -   Utah's "campus versus shops" system

    -   Other systems

-   Budgeting & Funding Processes

-   Feedback

-   Relevant Web Sites

-   Contacts

[III. WEB-ENABLED SOFTWARE]{.underline}

***[Introduction:]{.underline}***

Washington has developed web-enabled and Intranet services for a wide
range of state agency purposes. The state has created a "Building on a
Disk" service for state owned buildings. This system provides building
managers with a complete inventory of all the physical systems in the
building, as well as maintenance and repair planning and tracking
capabilities connected to the centrally provided state services. The
state also has a sophisticated online bid package for construction
projects.

The Texas Department of Mental Health and Mental Retardation (TDMHMR)
has established a Computer Aided Facility Management (CAFM) System
covering its 1500 buildings at 22 agency schools and hospitals. The CAFM
operates an enterprise system over the departmental Intranet that
incorporates a web-based application, client-server, and hand-held
computers to track and manage maintenance services, building conditions,
property, assets, capital construction, and legislative reporting and
requesting. The system has been used as a model for other departments in
the state and other states in the region.

As discussed in more depth in Practice Area 2: Operations & Maintenance,
the "Maintenance Excellence" program in Michigan includes the computer
maintenance management system, called MAXIMO, which is currently online
in all of the Office of Property Services managed buildings. The
capability to support maintenance needs online has reduced cycle times
and improved cost performance for the state.

Following is a summary discussion on these practices:

1\. Leasing

2\. Planning & Construction:

-   Washington's public works bidding process

-   Texas DMHMR's Capital Assets Planning System

-   Texas DMHMR's construction project management program

3\. Maintenance & Management:

-   Washington's "Buildings on a Disk"

-   Texas' FacilityCenter™ maintenance program

4\. Feedback & Internal Communications

A. LEASING

The Washington State Department of General Administration uses
web-enabled software in simple and sophisticated ways. On the leasing
side, the section uses it to lower costs and to enhance its solicitation
outreach. The Real Estate Services (RES) section advertises all its
space needs and co-location opportunities to reach private sector
landlords and tenant agencies. It previously placed advertisements only
in newspapers. These ads were wordy, hard to read, and very expensive.
Now the agency places simpler, less expensive ads in newspapers and
refers interested individuals to the agency's web site for the complete
request for proposal, resulting in agency savings of \$40,000 per year.
It also has expanded its outreach since many businesses with available
property did not necessarily see the ads in the paper. Now those
companies can bookmark the agency's web site and review it regularly for
new space needs. (See: <http://www.ga.wa.gov/DRES/LeasedSpace.htm>).

Internally, the Washington Real Estate Services section maintains a
Lease Inventory System (LIS), which is a database of all property leased
from the private sector.

# B. PLANNING & CONSTRUCTION

### **Washington's Public Works Bidding Process**

The Engineering and Architectural Services (EAS) section of the
Washington State Department of General Administration uses an advanced
web-based software system to streamline the process for soliciting
public works construction bids.

Created and managed by a private company -- the Builders Exchange of
Washington -- the FastBid™ software allows web access to an entire bid
package, with drawings and all details. The Washington State Engineering
and Architectural Services section web site links to the Builders
Exchange site, where all its public bids are listed and available for
contractors. Contractors can use this site to review building documents
and to measure, estimate and prepare construction bids, and to print any
number of plans or specifications, order prints, or register to be
notified of new documents on a given project. (See:
<http://www.ga.wa.gov/eas/easvend.htm>, click on "Current Projects
Advertised for Bidding." First-time users will need to download the free
software.) The Builders Exchange promotes the system as "the world's
first Internet blueprint reader that loads in 10 seconds."

The goal of this system is to move away from paper and keep as much as
possible online. If fully implemented, the EAS official estimates that
the state agencies alone would save \$1 million each year just in
printing costs. An online system would also save time. When all
participants are fully using the online system, an EAS official said the
time to put a project out to bid would be cut in half at a minimum.

### **Capital Assets Planning System in Texas**

The Computer Aided Facility Management (CAFM) Office of the Texas
Department of Mental Health and Mental Retardation is an enterprise
program of various systems designed to capture, retain and manipulate
capital assets and facility management information for the agency. CAPS
(Capital Assets Planning System) uses VFA Facility software for
strategic planning purposes while the Construction Project Management
System uses Expedition software to manage building projects.

CAPS is a tool for planning capital projects and construction. The
system can construct an actual project proposal that an agency could
then use in a formal request for funding from the state legislature.
Using standards and estimates entered into the system, it produces the
proposal and can distribute it electronically to relevant legislators
and committees. This system also contains the Department's deferred
maintenance list.

An official with the CAFM office said this system saves numerous hours
of work.

### **Construction Project Management System in Texas**

While the CAPS system is a planning tool that can create construction
project requests for the legislature, the Expedition Contract Management
System manages the construction itself. Information from CAPS moves
easily into Expedition, which then handles all documents through the
construction process including bids, specifications, expenditures,
contracts and more. This system is also used for major renovations.

Expedition is one aspect of the larger Construction Project Management
System, which also includes the state's accounting and procurement
systems, and more. The state uses separate software for those systems,
which are not included in Expedition.

After the completion of a project, the information from Expedition is
moved into the system for facility maintenance, called FacilityCenter™
(See below for more details).

# C. MAINTENANCE & MANAGEMENT

### **Buildings on a Disk**

The Engineering and Architectural Services section of the Washington
State Department of General Administration has created a system known as
"Buildings on a Disk." The system gathers all operations and maintenance
information for a facility on a single CD-ROM, providing a snapshot of
all maintenance materials.

EAS staff members go out to facilities and work with facility managers
and their staff members to identify all relevant maintenance documents.
These include architectural drawings, maintenance manuals, and all other
documents that maintenance staff members use regularly.

EAS places all this material onto a CD-ROM and burns five to ten copies
for each facility.

### 

### **Facility Assessment in Texas**

The Computer Aided Facility Management Office in the Texas Department of
Mental Health and Mental Retardation uses CAPS for capital planning,
Expedition for managing construction projects, and FacilityCenter™ (see
below) for its daily maintenance needs. Before implementing any of these
systems, however, CAFM first needed to conduct a complete assessment of
the Department's needs and facilities, to create a baseline for all its
new software systems.

The Department hired Graphic Systems Incorporated, a Cambridge,
Massachusetts facility management technology company, to assess the
Department's needs and create a process for the entire effort. This step
involved a steering committee, focus groups and some facility site
visits.

GSI recommended VFA, Inc. as a sole source vendor to conduct a
comprehensive assessment of all MHMR facilities, including schools and
hospitals. (VFA is also the company that produces the software used in
the CAPS system). The company began the assessment in late 1996 and
completed it 13 months later in late 1997. The process employed two
teams of four to five people -- an architect, a mechanical engineer, an
electrical engineer, a life safety code expert, and one or two others
depending on the type of facility. A team generally spent one week
assessing a facility, and the following week entering data. CAFM
officials said that the teams assessed everyone from the agency's CEO
down to managers and housekeepers in buildings. The long distances
between locations in Texas added time and travel to the process.

"We assessed everything we had, from fence to fence," an official said.
The \$2 million process identified 1,500 buildings at 22 sites with 10
million square feet.

### 

### **FacilityCenter™ in Texas**

While conducting the facility assessment, the Department also launched
its search for a Computerized Maintenance Management System. However,
the Department soon realized that it needed more than a system to simply
handle maintenance. Instead, it needed to handle broader issues,
covering the whole management of a facility.

The Department wanted a single software package that could order
materials, handle lease management, manage maintenance and operations,
and produce work orders. The Department purchased software now called
FacilityCenter™, owned by Peregrine Systems. Importantly, the system can
manage the work order system through Palm Pilots, eliminating printed
work orders.

**[Michigan's Maintenance Excellence Program]{.underline}**

As discussed in Section II. Operations & Maintenance, Michigan is
instituting a comprehensive Maintenance Excellence program to enhance
preventive maintenance and improve its customer service. The state is
using a sophisticated web-enabled software system called MAXIMO to
coordinate nine project teams in order to transform the state's
maintenance program from one that is reactive to one that is pro-active.
Michigan received an award in 2001 from the National Association of
State Facilities Administrators for this excellent program.

# D. FEEDBACK & INTERNAL COMMUNICATIONS

The Real Estate Services division in Washington State distributes an
electronic transaction survey at the end of each project to all who
worked on it, whether it is for new space, alterations, or lease
renewal. The division said that it has a high response rate to the
survey, likely because it is electronic and simple to complete. "It's a
good communications tool, and we use the information to help us rate how
we're doing with our clients and how our services are functioning," one
official said. "It helps us set meaningful goals for the future."

The division also posts all internal forms are on its web site, with
manuals and guides on how to use the division's services. The division
does not provide property management unless agencies request it --
instead, agencies tend to manage their own building. The RES division's
web site includes information on how agencies can manage their own
properties. (See <http://www.ga.wa.gov/DRES/HandBook.pdf>).

**Appendix 4** offers more details on:

-   Planning & Construction:

    -   Washington's Public Works Bidding Process

    -   Capital Asset Planning System in Texas

-   Maintenance & Management:

    -   Buildings on a Disk

    -   FacilityCenter in Texas

-   New Ideas

-   Relevant Web Sites

-   Contacts

[IV. PUBLIC-PRIVATE PARTNERSHIPS]{.underline}

***Introduction:***

The Department of Administration in Arizona has received two awards for
its program, one from the National Association of State Facilities
Administrators and another from the National Association of State Chief
Administrators. This program is a response to limited office space for
agency tenants in the state Capitol Mall area, and the high rental costs
in the private sector. In this program, the private sector developer
will own, develop, operate and maintain buildings on state-owned land.
The state will lease the buildings from the private developer, and at
the end of the 25-year lease, will own the buildings.

The State of Washington has also completed a program where it gives
underutilized state property to a private sector firm, who then develops
the property, and in exchange gives the state a different property
equivalent in value to the fully developed value of the state land.

As previously discussed in Practice Area 1: Acquisition and
Construction, Minnesota is also pursuing a lease-to-own project that may
serve as a model in the future while Maryland is pursuing creative ways
to encourage development on state-owned property near mass transit.

This section includes a summary of the following:

-   Arizona's PLTO system

-   Washington State's land swap

-   Washington State's Lease Development Proposal

-   Maryland and Minnesota

A. ARIZONA'S PLTO SYSTEM

The General Services Division of the Arizona Department of
Administration (ADOA) has implemented a Privatized-Lease-to-Own system
(PLTO, pronounced "Plato") to meet a number of challenges.

The state had not constructed a building on the capital mall for seven
years and instead had expanded leases for state agencies in private
office space at high and increasing rates. At the same time, the
legislature believed in "pay-as-you-go" methods of funding by
disapproving the use of bonds for construction of state buildings. While
the state owned land on the Capitol Mall, it had been unable to build on
that land. The ADOA challenged its General Services Division to create a
plan to meet the needs of housing state agencies, given these
restrictions.

General Services pursued a method in which a private developer would
finance the construction of new buildings, then design, build and
operate it on state-owned property, leasing it back to the state at or
below the current state lease appropriation. The master plan called for
11 new buildings over a 10-year period, beginning in the first year with
the construction of two buildings totaling 485,000 square feet for the
Department of Environmental Quality and the ADOA.

The state needed its payments to be less than or equal to its current
lease costs. The ADOA estimated that the first phase of PLTO would save
\$300,000 a year from the amount the state had been spending in the
private sector on agency leases. The state would then own the two
buildings after year 25. Because the ADOA expects the buildings to have
50-year useful lives, the state would occupy the buildings rent-free for
the second 25-year period. In total, this phase of the plan would save
the state \$70 million during that time.

The developer broke ground on the project on February 21, 2001 and two
state agencies began moving in on July 1, 2002.

An agency document described the PLTO program's significant features in
this way:

-   No up-front capital appropriation is required.

-   The developer provides all financing. The state does not back the
    bonds.

-   The developer designs and builds to the state's specifications, and
    operates and maintains them for the term of the lease.

-   The state owns a \$100 million asset at the end of the lease.

-   The state moves from class "B" or "C" space to class "A" buildings
    and saves \$300,000 per year on lease costs.

-   Building renewal costs are built into the lease payments and are
    carried in an interest bearing account. Any balance remaining at the
    end of the lease reverts to the state.

-   Value based selection and design-build fast track procurement
    provides more value and saves time.

-   Customer service is improved by providing one-stop-shopping for the
    public.

-   Consolidating agency functions improves operational efficiency and
    eliminates duplicate support operations.

-   A public/private partnership is developed such that the state wins,
    the private sector wins, and best of all the taxpayers of the state
    of Arizona win.

B. WASHINGTON'S LAND SWAP

[Background:]{.underline}

The Washington State Patrol traded property with old buildings for a new
property with new built-to-suit facilities, while turning a \$4.8
million asset into one worth at least \$9.5 million. An official with
the Real Estate Services division of the Washington State Department of
General Administration described the project as a "win, win, win, win,
win" for many sectors.

Fifty years ago, the State Patrol obtained land in an area that was an
unincorporated section of rural Olympia. The property is now located in
the midst of the high-volume retail center of the city and county,
surrounded by other newly incorporated towns.

The old property contained 20 acres of level, rectangular ground
surrounded by retail development. The State Patrol used it for light
industrial and storage purposes. The facility included four buildings
containing 54,000 square feet. Buildings ranged in age from 20 to 45
years.

About 6 years ago, the State Patrol determined that its site was in the
wrong location for its purposes. The buildings were old and the area
around the site was crowded. The property was appraised at the time at
about \$4.8 million. Officials with the State Patrol thought the land
was worth much more than that amount to a retail developer given its
location.

[Process:]{.underline}

Leaders with the State Patrol considered the innovative idea of
exchanging that valuable piece of property for other property in a light
industrial park with new facilities that matched the State Patrol needs.

After a lengthy process (see Appendix 5 for further details), a
developer proposed to build new facilities on new property (valued at
approximately \$10 million) in an exact exchange for the
currently-appraised \$4.8 million piece of land. The developer would
secure national retailers to lease space on the old property. By
securing those lease obligations, the property is worth significantly
more.

[Benefits:]{.underline}

State officials described the numerous benefits for the state and
others:

-   The original \$10 million capital request for new State Patrol land
    and property is moot, freeing that state money for other purposes,
    such as schools.

-   This swap returns the old, valuable property to the tax rolls. The
    city of Olympia will receive approximately \$600,000 in sales tax a
    year and the local school district will receive about \$250,000 a
    year in property tax.

-   The new site is sized for normal growth at the agency for the next
    20 to 25 years, and the agency expects to have 50 years of life.

-   The new site consolidated the agency a bit, incorporating some other
    functions into the fleet facility, which has improved the agency's
    ability to equip cars at less cost.

-   The old space, most of which was built in 1949, was in poor repair
    and some functions were in cramped quarters. One building in the old
    space was 8,000 square feet while it has 30,000 square feet in the
    new space. This change has improved morale and productivity.

-   Employees do not struggle through the high volume traffic of the
    previous location. The new site is closer to employees' residences
    compared to the old site. Whereas some employees previously had
    one-and-a-half hour commutes each way through traffic; they now have
    commutes of about 20 minutes, with no traffic.

-   Operating expenses will likely be reduced (on a per square foot
    basis). The old site and its old buildings required a lot of
    resources for capital improvements. The new buildings are energy
    efficient and economically designed. The temperatures are very
    stable, leading officials to estimate that heating and air
    conditioning bills will be more predictable and reasonable. Although
    the new location has three to four times more space, the operating
    expenses will not be proportionately higher.

-   Consumers benefit from having access to popular stores in this
    retail location.

See Appendix 5: Washington State's Land Swap for more information.

C. WASHINGTON'S LEASE DEVELOPMENT PROPOSAL

The Real Estate Services division of the Washington State Department of
General Administration has launched a new Lease Development Proposal.
Using this method, when the state puts out an RFP for a building, one
available opportunity is for the developers to propose to build on state
land. The state would lease the land to the developer, and would
eventually own the entire property. Rent would need to be similar to
current market rates.

A common problem facing states when considering building construction is
the initial up-front appropriations, which are higher than leasing. It
often takes 10 to 15 years before it is less expensive to own than to
lease. With states experiencing budget shortfalls, legislatures may not
be concerned with saving money in 10 to 15 years rather than today.

With the Lease Development Proposal, the private sector will take on the
financing, the state will pay lease rates, and it won't require any
initial capital appropriations from the state. An official said the
system will be slightly more expensive than current rentals only because
the state will want to build better quality buildings than some of their
private sites.

Developers have expressed strong initial interest in this program. Right
now, the state needs approximately 200,000 square feet of space.
Traditional state developers have expressed interest, as have
out-of-state developers. Under the current system, the Real Estate
Services division deals mostly with investment developers. However, the
Lease Development Proposal system should be attractive to merchant
developers, mostly from out of state, setting up a competition between a
bigger pool of developers.

**D. MARYLAND & MINNESOTA**

As described further in the "New Ideas" section of Appendix 2:
Acquisition and Construction, Maryland is pursuing new methods of
developing property through public-private partnerships. The state has
offered property to the development community, which must propose
projects for mixed-use, transit-oriented space, with use by government
and retail.

Minnesota, is mid-way through a lease-to-own project to create new space
for three state agencies. As discussed in the "Creative Building and
Leasing in Action" section in Appendix 2: Acquisition and Construction,
both the Division of State Building Construction and the Real Estate
Management Division of Minnesota's Department of Administration are
working with three agencies to both build and lease new property. Like
Arizona's PLTO system, the lease-to-own model in Minnesota does not
require significant initial state appropriations or state-backed bonds.
However, in Minnesota the construction bonds will be backed by another
public agency.

**Appendix 5** offers more details on:

-   Arizona's PLTO System

-   Washington State's land swap

-   Washington State's Lease Development Proposal

**[APPENDIX 1: METHODOLOGY]{.underline}**

A variety of sources were used to identify leading states. Two reports
were used: a U.S. General Accounting Office report from December 1998
entitled, "Executive Guide: Leading Practices in Capital Decision
Making," and "Grading the States," a February 2001 special report
published by *Governing* magazine. Experts were contacted in the field
of property management, including officials, reporters and experts from
the National Governors Association (NGA), *Governing* magazine, Syracuse
University's Maxwell School of Citizenship and Public Affairs, The
National Association of State Budget Officers (NASBO), the National
Association of State Procurement Officials (NASPO), the National
Association of State Facilities Administrators (NASFA), the National
Council for Public Private Partnerships (NCPPP), Stainback
Public/Private Real Estate LLC, the University of Nebraska at Omaha, and
the U.S. General Accounting Office.

Based on this research and interviews to ascertain exemplary states, the
following states were selected:

-   Acquisition and Construction: Maryland, Minnesota, and Utah

-   Operations and Maintenance: Michigan, Missouri, and Utah

-   Web-Enabled Software: Texas (DMHMR) and Washington State

-   Public-Private Partnerships: Arizona and Washington State

Many of the states had previously been publicly praised or given awards
for their leadership, and some officials in the states have been
contacted by other states and agencies seeking information about their
successful programs.

GSA sent an introductory letter to the top official at the relevant
agency in each of the above jurisdictions. GSA also sent copies to the
leaders of the specific divisions most involved in managing the key
functions under study. A George Washington University (GW) team under
contract to GSA then contacted the office of the top official to
determine or approve the list of officials who would be interviewed for
the purposes of this study.

The GW team then contacted these officials, sent them brief additional
background on the purpose of the GSA study, and an outline of the topics
to be explored during a phone interview.

During phone interviews, the GW interviewer asked officials:

-   To identify practices that make their agencies function successfully
    and contribute to their leadership in the field.

-   For any unique funding and budgeting systems for those practices

-   Cost savings that could be attributed to those practices.

-   To identify other officials in their states who should also be
    invited to participate in the GSA study.

-   To identify representatives at customer or tenant agencies who are
    familiar with the practices identified and who could offer more
    details for the study.

The GW team interviewed 22 officials in eight states. Interviews
generally lasted 45 minutes to one hour. Some states provided additional
documents to supplement the information provided during the interviews,
or directed the GW team to web sites for further information. The
interviewees all had an opportunity to review relevant sections of the
report before its publication.

Further details about the practices are provided in the Appendices that
follow.

**[APPENDIX 2: ACQUISITION & CONSTRUCTION]{.underline}**

**A. DESIGN & CONSTRUCTION SERVICES**

######## [Maryland's Smart Growth]{.underline}

Maryland's wide-ranging program to foster "smart growth" in the state
affects its actions from purchasing property to leasing private space.
The state chooses projects that reflect its commitment to advancing most
growth within central business districts while protecting green space
and rural areas. The Office of Real Estate in the Department of General
Services (DGS) leads this work.

Although the state has created a smart growth checklist and uses the
U.S. Green Building Council's LEED criteria for green buildings, it
remains flexible with the specifics. For example, in a heavily populated
downtown city area, it may be difficult to create a platinum-level green
building based on the criteria. However, the project may still meet the
state's goals because it is targeting a community that may need economic
infusion.

While any municipality within a central business district boundary is
targeted for these projects, the state is also considering honing this
down into "smarter smart growth." This would target the exact areas
within a central business district that most need the investment and
have the best opportunities to flourish economically with such
investment. Through state investment in these areas, Maryland hopes to
promote activity and bring people back to older communities. As one
agency official said, people bring security to blighted areas, and help
promote further economic activity. Some of these areas also bring
additional benefits to developers, such as historic tax credits, making
the project more appealing.

"Smart growth has taken off and has been embraced by more developers to
combat sprawl," according to one official. He points to "enlightened
developers" who are staying in city and town cores, and proposing
projects of adaptive re-use. He acknowledges that the construction
industry would rather build new buildings on vacant land than remodel
old buildings or build on previously used sites. However, with
leadership, as well as historic areas worth preserving, "a cultural
change" can take place to encourage smart growth. In Maryland, the
government even canceled prior building projects as the state focused
its resources on core cities and towns.

In recent years, the state has focused mainly on construction of public
schools and higher education, along with district court facilities. The
state generally eschews building government agency offices, instead
believing that "you get a good value for your dollar in leases" given
how agency needs change.

[Smart Growth in Action:]{.underline}

The Office of Real Estate in the Department of General Services (DGS)
negotiated space for two state agencies to move into a completely
refurbished site that incorporates the state's green office/green
building criteria. In Fall 2002, the site of the old Montgomery Ward
distribution center in Baltimore will be the new home to both the
Maryland Department of the Environment (MDE) and the Maryland State
Lottery Agency.

The building, with more than 1.3 million square feet, is the largest
building in Baltimore, located in a section of the city that is
designated a Maryland Enterprise Zone, a federal Empowerment Zone and a
Revitalization Area of Baltimore. The MDE will occupy 262,300 square
feet and the Lottery will occupy 72,271 square feet of the site. The
site meets smart growth criteria by reusing an old, unused building with
all infrastructure already in place -- including three bus lines and
access to area highways. The building will feature extensive use of
green building techniques including recycled materials, a
state-of-the-art energy management monitoring system, reduced wattage
efficient lighting, recycled carpet, water conservation systems, and a
green roof with plants.

[Process:]{.underline}

DGS put out a request for proposals in March 2000 for the MDE space
needs, and this site won the bid. The 10-year lease includes a five-year
renewal option and a guarantee that the state will pay no more than 98
cents per net usable square foot for energy consumption -- anything
higher will be paid by the owner.

MDE first received budget approval to seek new space as its current
lease was set to expire. MDE officials then worked closely with the
staff members in the Office of Real Estate to identify preferences and
specifications to include in the procurement document. They explored
ideas involving water conservation, energy conservation, green building
methods, use of sustainable materials, recycling materials and more. The
agencies needed to develop new criteria for the selection process, to
ensure that it was fair and defendable, while also ensuring that the
state would not need to accept the lowest bid proposal that did not
include the preferred specifications. These agencies created a matrix
for assigning points based on the criteria for selection. As one
official said, "We didn't want low bid only. We wanted to be able to
make the decision on the good stuff," meaning key green building
criteria.

[Proposals:]{.underline}

Maryland received four responses to its RFP. "The responses ranged from
the winning proposal that exceeded nearly every aspect of our RFP, to a
losing proposal that basically just Xeroxed some old floor plans." The
official said that three of the four companies submitting proposals
clearly spent some time and money to respond.

"The winning Montgomery Park proposal was light years ahead of the other
three," this official said.

MDE is scheduled to move to the new location over three consecutive
weekends in late August 2002. An official described the new facility as
"amazing." The developer replaced over 60,000 individual windowpanes.
Private offices, lunchrooms, and restrooms are limited to the center
space to make sure that natural light shines through the exterior
windows throughout the rest of the office. The developer creatively used
the standard state allowance for the build-out for 5-foot high
partitions to define 1200 work stations, ranging from 80 to 125 square
feet. The MDE official said the developer accomplished this "at a
fraction of the price you pay for systems furniture, including the cost
of the work surfaces and other office systems."

[The Facility:\
]{.underline}Many of the unique features of the facility are due to the
leadership and flexibility of the Office of Real Estate in DGS, said the
official with MDE. Leaders there were "open to alternative proposals
from the developer and new ideas."

For example, in a typical procurement, the state requires standard drop
ceilings. But in this space, which has 10-foot ceilings with large
interior columns that have a mushroom shape at the top, the developer
proposed an alternative system so that the height of the ceilings and
the interesting columns would not be completely concealed. Instead, the
developer created a system with hanging lights and ceiling tiles that
offers the required lighting intensity and sound protection of a drop
ceiling.

"We basically said to the developers, 'Have fun with this. Tell us what
you can do. This is for the Department of the Environment.' And the
landlord rose to the occasion," said the official with MDE.

Other unique features include an ice pond system on the roof, which
freezes water at night and blows air across it during the day as the
primary source of air conditioning. The building also stores storm
water, pumps it to the roof, and uses it to flush the toilets. Grass is
growing on portions of the roof, used as insulation and also as a storm
water measure. Officials said it is the first green roof in Baltimore
and one of the largest in the country.

"It was an ideal partnership of DGS and its innovative procurement
(process), a developer that was more than willing to step up to the
plate, and the MDE," said the official.

The MDE also praised the Maryland Department of General Services for its
monitoring of the actual construction and build-out.

"Yes, it was an innovative procurement and selection, but DGS had to
make sure it wasn't all just smoke and mirrors," the MDE official said.
"As short-staffed as they are, they nevertheless committed the resources
to make sure it was built as promised."

(See [http://www.montgomerypark.com](http://www.montgomerypark.com/) for
more details on the project).

######## 

######## [Minnesota's Integrated Predesign/Budgeting Process]{.underline}

Minnesota uses an integrated system for budgeting, designing and
building capital projects. Key tools in this process include the Capital
Budget System (CBS), the Predesign Manual, the Design Guidelines, and
the Design-Bid-Build delivery method for construction projects. The
Department of Administration's Division of State Building Construction
(DSBC) leads this effort.

Requesting agencies must submit a predesign document to the Department
of Administration for all new construction or major remodeling project
requests. The state assesses the need, cost, scope and schedule of the
project, all of which is then subsequently used in the Capital Budget
System.

Depending on the level of the agency's construction sophistication, the
predesign document may include all necessary items or require
significant revision to meet the requirements. Some agencies build more
frequently and are therefore more familiar with the process depending on
their capital needs. Some agencies, such as the state college and
university systems, have their own power to purchase predesign. Others,
such as health services, corrections, and economic security, do not
conduct their own predesign and instead work with the Division of State
Building Construction to secure consultants and meet the requirements.
Those become projects in the DSBC office.

The Predesign Manual
(<http://www.dsbc.admin.state.mn.us/pdfs/predesign-manual.pdf>)
incorporates the same system and forms used in the CBS for determining
costs. It asks the agency to align its request with its strategic plan,
to establish the need for the project and substantiate costs.

The updated Predesign Manual now includes the Minnesota Sustainability
Guidelines in its requirements. Agencies are beginning to incorporate
these guidelines into their timelines and goals. Because the DSBC
reviews all predesign for school districts that receive block grants
from the state, the agency expects that the new sustainability
guidelines will have a significant impact on all future school projects.

After approval, agencies use the new Design Guidelines to assist in the
actual design of the building or facility. (See
<http://www.dsbc.admin.state.mn.us/pdfs/desguide.pdf>.) Prior to the use
of these new guidelines, which are being released for the first time
this summer, the state relied on the expertise of the professional
community. The state outsources all design projects, but the Design
Guidelines offer specifications for those projects.

**[Utah's Value-Based Selection Process (VBS)]{.underline}**

Utah has switched to using a value-based selection (VBS) system to
choose architects, engineers and contractors for design and construction
services.

The state launched this system first as a quality-based selection
system, but modified it into its current form.

[Original System:]{.underline}

The original system involved a complicated mathematical formula that
quantified thousands of items. Many people did not understand how the
system arrived at its final ratings for a proposal. Under the VBS
system, officials said, participants understand the process and are
accepting of the ranking system.

The state's Division of Facilities Construction and Management (DFCM)
has completed dozens of contracts under this system. This new system did
not require legislative action -- it is permissible under the state's
procurement statute. However, the Legislature's Capital Facilities
Committee (which oversees the DFCM) gave its unanimous endorsement to
this process. Some legislators originally opposed the new system,
believing that it would throw money away. Officials with DFCM met with
legislators to explain the system.

"Let's say you're building a house, and you receive a low bid but you
know the builder has a bad reputation for the quality of his product,
and is often late or over budget," an official explained to legislators.
"You receive another bid that is higher, but within your budget, and he
has a great reputation. Which would you choose?"

An official said that other states that have a two-step process for
procurement involving pre-qualification and then bidding might be able
to utilize a VBS system without legislative changes. However, those
states that require low-bid selection by statute would not be able to
use a VBS system.

When Utah previously chose contractors by the lowest bid, officials said
they believe the state often suffered financial costs through wasted
time and poor quality of workmanship.

"With low-bid, you get the leftover superintendents," one official said.
"To win the bid, the firms hire lesser quality workers...with less
experience. Now we're getting people with 20 years experience and others
who wouldn't have worked on state projects in the past."

Some higher quality contractors never bid for state projects in the
past. They said that they could not compete in low-bid situations
because they do not cut corners or hire poor quality subcontractors. One
official said the number of those high quality contractors bidding on
projects has increased in the past few years.

A previous experience with an unscrupulous contractor inspired the new
system. According to one official, a large contractor submitted the
lowest bid on a significant state project and then siphoned off the
cash, did not pay subcontractors, and did not complete the work. In an
industry where many projects may take six months to two years to
complete, months may pass before the state would discover that a
contractor is not completing the work.

"We're looking for contractors who are performers," said a Utah
official. The state "still needs to make sure that there is a fair and
open process -- but that doesn't mean you have to select a poor
performer."

Another official said that VBS "seems to have made quite a bit of impact
on how we do things...We are seeing better results now. (Firms know
that) how they perform today affects their ability to get a state
project in the future. Now it takes little coaxing to encourage a
contractor to finish a job appropriately."

An official said that it has had a noticeable impact on general
contractors, instilling a "real attitude change," although that change
has not yet reached the subcontractor level. However, the state notes
when a subcontractor performs poorly, informing the general contractor
and lowering its ranking. Eventually, these general contractors will
likely use poor performing subcontractors less frequently if their
ranking from the state suffers due to these subcontractors.

Officials said that state agency representatives have praised the new
system, saying that they are working with better contractors, receiving
better products, and ending more projects on time. Additionally, because
contractors are more careful now in providing the end users with all
necessary operations and maintenance documents, the occupants of the new
buildings are better able to maintain the new facilities from day one.

The system allows the eventual occupants to rate the contractors, which
encourages contractors to be more responsive. The state now also
evaluates architects and engineers in this way, giving contractors the
opportunity to rate the designers. This encourages architects to be more
responsive to the contractor. Now, architects are less likely to let
contractors' requests for information sit for three weeks and more
likely to attend meetings asking how they can help solve problems,
according to one official.

"Now there's more cooperation and coordination" between architects and
contractors, this official said. "We're making progress. There is a lot
of team effort, from the selection process through to the end of the
project. If someone is not part of the team, it will affect their
ability to get a job with the state again in the future."

Utah also uses a Design-Build process of delivery on many projects,
while maintaining a Design-Bid-Build process for others. The DFCM uses
whichever delivery system works best given the type of project.

[VBS in Action:]{.underline}

One current Design-Build project involves 600,000 square feet of
classroom space at four different universities. Rather than hire four
separate architects to design the project, the state combined all four
projects into a modular system. The state hired one architect to come up
with a design that could be expanded based on space needs of each of the
colleges or universities. The state also hired one contractor to build
all four buildings. By hiring one architect and one builder, the state
saved staff contracting time. By standardizing all space sizes, the
state received savings by ordering all components in bulk. This process
reduced the price tag to the state government 25 percent from the
initial estimate, according to an official.

An official said that Design-Build is a faster process, but it can lead
to more generic buildings. The Design-Build projects have tended to
involve simple, square designs rather than circular or more difficult
construction. The state would not be likely to use such a system for
constructing a performing arts building, or other signature buildings.
"There is a place for each" of these delivery methods, an official said.

At a courthouse in Utah, a large parking terrace had been leaking snow
onto cars and causing damage. The DFCM's Capital Improvements department
sought a contractor to seal the parking deck. Five contractors bid on
the project. Of those, one company had experience only in smaller
driveways and had never managed a job on a large parking garage. While
it did not have the qualifications that the state was seeking from
contractors, it offered the lowest bid. Under the previous process, the
state would have been required to hire that company. "It would be just a
roll of the dice as to how (that company) would perform," one official
said. Instead, the state looked at three other companies with equal
experience and qualifications. All had good track records and past
performance ratings. The final selection was therefore based on their
end products. The three contractors each met with state agency
officials, along with the manufacturers of the products to be used on
the job, to discuss the products' guarantees. The state could then look
at product, price and guarantees. The state chose a contractor with a
good price, product guarantees for 15 years, and past performance
history with several successful jobs. A Utah official said he believes
this process saves the state money and time by satisfactorily completing
jobs.

**[Maryland's Special Roofing Team]{.underline}**

The Facilities Planning, Design and Construction division of Maryland
DGS formed a special roofing team to manage all aspects of roofs, from
construction through maintenance. With their propensity to leak and
create large-scale damage, shoddy roofs can present unique challenges
and significant costs to maintenance agencies. To limit damage and
costs, the three-person team in Maryland reviews every roofing design in
the state, ensuring proper construction at the outset, and monitors all
roofing maintenance plans, to protect current roofs. The team
spot-checks roofs under construction, and also holds workshops for
maintenance staff members to ensure that they properly care for the
roofs. By reviewing original plans and construction, and doing
spot-checks on builders and maintenance staff, the division is "solving
problems before they arise" according to one official.

#######  {#section-4 .unnumbered}

####### B. LEASING {#b.-leasing-1 .unnumbered}

**[Maryland's Procurement Law]{.underline}**

In Maryland, the Office of Real Estate in the Department of General
Services is responsible for approximately 90 percent of all leasing for
state agencies. This totals approximately 377 office leases of 4.3
million square feet with an annual rent payment of \$59 million.
Maryland owns approximately 90 percent of the property it occupies, and
rents the remaining 10 percent.

The tightly controlled procurement system in Maryland encourages
competitively solicited proposals and involves little delegation.

One official said that although the process takes a little longer than
in other states, it is highly competitive and very fair to those
competing for state business. No protest from a proposer has ever
advanced beyond the first level.

Another unique aspect of Maryland's system is that the state leases
space based on a Net Usable Square Foot (NUSF) method, rather than the
more common Rentable Square Foot (RSF) method. RSF is larger, so
Maryland actually pays for less space in comparison. In multi-tenant
areas, the state does not pay for common areas -- only the space it
occupies.

For larger leases, Maryland enters 10-year lease deals. In the 1980s, it
entered five-year deals, but realized it could secure better rents while
avoiding frequent moving costs if it entered longer deals. The state
does not enter capital leases, which would count as debt under the
state's debt affordability cap. Leases must therefore remain below the
capital lease triggers, in which the sum total value of a lease is under
90% of value of the building.

Leaders in Maryland noted that they use software programs to better
manage their leasing systems. Maryland uses a new, modified system
called ElmPro Property Management System for its leasing program. When
fully implemented, the system will integrate many leasing functions,
including trigger dates for renewals and generating leasing agreements.
A separate database system is used on the land acquisition side.
According to one official, such systems "should help you work, not just
keep track of what you're doing."

**[Minnesota's Mixed System]{.underline}**

By Minnesota statute, the commissioner of the Department of
Administration is responsible for finding space for state agencies,
unless an agency is exempt or has authorization to find its own space.
Therefore, Minnesota has a centralized system for the acquisition and
disposition of state property for state agencies.

Disposition is guided through a specific chapter in the state code
(<http://www.revisor.leg.state.mn.us/stats/94/>). Minnesota Statute
16B.24 guides the leasing process for the state
(<http://www.revisor.leg.state.mn.us/stats/16B/24.html>). This sets a
maximum lease term of 10 years, but includes very little other
regulation, according to one official. The state does have contract law
that guides leases, but it does so similarly for all contracts.

For acquisition, an agency requesting space must secure appropriations
from the state legislature along with authorization to proceed. On the
leasing side, agencies send requests to the Real Estate Management
Division of the Department of Administration, based on the legislative
appropriation and the programmatic operations of the agency.

[Steps of Process:]{.underline}

-   Officials with the real estate division meet with representatives
    from the agency to gather details, such as location, amenities,
    number of people in the space, need for public access, and a wide
    range of other issues.

-   The division then conducts a comparative market analysis, sees what
    is available that would meet the needs and identifies possible
    properties.

-   Officials conduct tours of those properties with representatives of
    the requesting state agency. Along with those representatives, the
    real estate division evaluates and selects a preferred site.

-   The division then begins negotiations with the landlord, and sets
    the terms and conditions.

The Minnesota Real Estate Management Division's goal is to settle as
many details up front, so that by the time a contract is ready to sign,
it is comprehensive in its coverage.

"We have expertise in real estate, but they have expertise in the
delivery of their programs," explained one official. "The more we know
about their program, the better we can identify appropriate space."

Minnesota's state form lease has been in use for the past 20 years, so
companies are very familiar with it. This familiarity helps make the
process simpler for both the state and the landlords, according to one
official.

The division also provides planning services on a limited basis. State
space planners participate with agency representatives in planning
meetings with the landlords.

When using an RFP system, the division will spend a significant amount
of time up front before sending out the RFP. The experience and
preparation of the requesting agency will impact the amount of time this
step takes. An agency might not know all the details of its space needs,
and might require more time to gather that information.

If an agency requests 150,000 square feet, for example, it may take
several months to create a space program for the agency based on the
agency's response to the real estate division's analytical forms.

"We start from the questions, 'What is your real need? How can your
people get their job done well? What are the actual functions of the
job?' It's a time consuming process," explained one official. However,
"the better we define the needs, the better product we'll get in the
RFP."

The division leaves the RFP on the market for five to six weeks, or
perhaps longer. The division expects a lot of work and planning from
proposers, including a preliminary floor plan layout and other details.
Therefore, the division wants to allow companies enough time to create
thorough proposals.

After the division receives proposals, it evaluates and identifies the
first preferred site through a ranking system.

One official said that this extensive preplanning process, which
includes much fact gathering from the requesting agency, is a system
that evolved over time. Prior to five to ten years ago, the division
might have looked at an agency's request and determined the space needs
based on the number of workers at certain levels of employment
classification, regardless of the type of work these workers actually
conducted. So in an agency with 80 staff members at X job
classification, the agency would need Y amount of space. One official
referred to this cursory process for space planning as "archaic." Now
the division focuses more on the program of the agency, and reviews work
surface space, accessibility issues, the need for public access and much
more.

In the new system, this official explained, an administrative support
person might receive more space than his or her manager if that is what
it takes for each of them to get their jobs done.

This shift in the division's way of doing business did not occur
overnight. Instead, it was a gradual evolution as the division responded
to the changing work force, new technology, ideas of comfortable work
spaces, and needs for increased productivity. Those changes affected
many space choices, including carpet, lighting, and common space. Now
the main question the division asks, according to one official, is "What
do you need to get the job done?"

Not long ago the state created a strategic plan for the location of
state agencies. Like other studies, this plan noted that it is generally
better to own than to lease and estimated break-even points for leasing
versus owning. However, the state also determined that it should keep
some portion of its portfolio in leased space to stay diversified.
Therefore, the state evaluates each space request on a case-by-case
basis for purchasing versus leasing.

Of the space that the Department of Administration controls, i.e. those
buildings that it leases for state agencies or owns, the state leases 70
percent while owning 30 percent. However, several state agencies, such
as the Department of Transportation, the Department of Corrections and
others, have custodial control over their space. That space is not
included in the above estimate.

One official noted that the level of centralization of leasing functions
varies dramatically between states, and that some states are moving
toward more centralization while other are moving in the opposite
direction. This official hypothesized that the manner in which a state
is organized and the specific way that a state constitution is written
may dictate what system works best in each state.

"I know that in Minnesota, clearly, centralization is working best,"
this official said.

**C. CREATIVE BUILDING & LEASING IN ACTION**

The Minnesota Department of Human Services (DHS) is currently working
with both the Division of State Building Construction and the Real
Estate Management Division on a major capital project.

DHS leases a significant amount of office and administrative space in
the Twin Cities, with some leaseholdings elsewhere. The agency manages
the mental health and chemical dependency facilities throughout the
state, most of which are state-owned. The agency also manages some group
homes, which are a mixture of owned and leased property.

For more than 15 years, the agency's administrative offices have been
entirely in leased office quarters. Four years ago, the agency hired a
consulting team to create a facilities master plan. In doing so, a
financial analyst developed a model to assess the cost effectiveness of
leasing versus owning. After considering all the variables that the
agency was able to identify, the model indicated that the cost to own is
lower over a 20 to 25 year period, although the costs are higher in the
beginning. While this finding was expected, the savings over time were
not as significant as anticipated.

The somewhat volatile real estate market challenged the ability of the
agency to budget and plan for future space needs. According to one
official, it was difficult to find affordable, suitable office space,
especially given the agency's space needs -- it rents just less than
600,000 square feet for administration facilities.

The master facilities plan also assessed the organizational needs of the
agency. The agency is currently in eight separate rented facilities,
which makes communication and coordination difficult and interferes with
policy making and meeting the mission of the agency.

DHS began conversations with two other agencies with which it often
works -- the Minnesota Department of Health (MDH) and the Minnesota
Department of Agriculture (MDA) -- to consider co-locating facilities.
The Department of Health leased facilities, and had an outdated
laboratory, and the Department of Agriculture had substandard facilities
and needed a new lab.

The three agencies then requested funding for predesign work from the
state legislature. The legislature granted \$1 million for the work; the
agencies then had two years to complete the predesign stage. One
official said that although a three-agency predesign was a little
unwieldy, it was a successful effort.

The Division of State Building Construction assigned a project manager
for the entire predesign, making sure the project stayed on schedule and
on course. That division received the predesign money, so it also served
as the financial clearinghouse for the project. The project as
envisioned was extremely large: nearly 600,000 square feet for DHS, just
a little less for the Department of Health, and a smaller site for
Agriculture but one that included a complex lab.

After the completion of the predesign work, the agencies submitted this
proposal to the governor's office to create a budget for the state
legislature to consider. Given the economy and its effects on capital
bonding, the governor's office required the agencies to scale back the
request significantly.

The final proposal put forward to the state legislature included space
for half of the administrative offices of DHS, new labs for Health and
Agriculture, and office space for all of Agriculture. Because the labs
were highly specific facilities, the state sought bonding to build the
labs and they would therefore be state-owned. For the DHS and
Agriculture office space, however, the state decided to pursue a
lease-to-own approach, using a bonding authority other than the state
but with a rating similar to the state's.

During this past legislative session, the agencies received the bonded
money for the labs and the authority to move forward in a long-term
lease-to-own arrangement for the office space.

The property on which the project will be built is itself state-owned.
The agencies are currently working with the Real Estate Management
Division to finalize the lease-to-own agreement with a non-state bonding
authority. The agencies anticipate a three-year construction process
after the lease agreement is finalized. The lease-to-own contract will
be for a 20- or 25-year period. The legislature insisted that the state
must have the right to buy out the contact at an earlier date. According
to one official, this adds to the challenge of finalizing the very
complex arrangement.

The Division of State Building Construction, meanwhile, has assigned a
project manager to the lab building project, and a number of consulting
teams have been hired for different aspects of the project, including
lab design and interior space planning for the entire project.

The project is currently at its mid-way point.

The agencies decided to pursue a lease-to-own method because they felt
it offered the best opportunity for legislative approval. It is
challenging for legislators to spend scarce resources to house state
agencies, officials said, even in a strong economy. In the current
context of budget shortfalls and weak state economies, there are many
competing capital needs. So although the agencies considered all
financing alternatives, including straight leasing and bonding for state
ownership, one official said that the project might never have moved
forward without this creative financing approach.

This unique method has created several challenges so far. The capital
budgeting system (CBS) is designed for straightforward bonding requests.
The agencies encountered some obstacles in using the CBS system for a
lease-to-own project, because it was the first time that such a large
project used such a method. However, one official believes those systems
will be smoother in the future.

Another challenge has been to generate legislative understanding and
support for the project. Lawmakers understand and can judge bond
requests relatively easily, but the somewhat confusing nature of this
project made such judgments more difficult.

"This is a model that should be looked at elsewhere, with eyes open,"
one official said. "Other methods are fairly simple -- it's easy to
estimate construction costs, and you know the bond rating. So when using
this method, there may be a certain amount of frustration because
matters are more complicated."

Because the project is just at its mid-point, another official said it
is too soon to judge whether this will be a model for future
development. However, the state is open to considering concepts such as
this to convert leased space into owned space where warranted.

####### D. CONSTRUCTION BUDGETING & FUNDING PROCESSES {#d.-construction-budgeting-funding-processes .unnumbered}

**Maryland**

Maryland has a five-year capital improvement program, and funding must
be approved before any bidding on projects begins. Most projects follow
the five-year schedule, but there are times when projects must be
approved out of sequence. For example, there were a number of security
projects that took precedence following the attacks of September 11.

According to one official with the Office of Facilities Planning,
Design, and Construction, the capital budget process gives the
department a clear game plan for maintenance, design and construction.
As soon as the legislative session comes to an end in April, the
department knows what will be funded for the coming year.

**Minnesota**

In Minnesota, the state legislature considers capital funding requests
from agencies,\
via the governor, biannually on even numbered years. (Agency operating
budgets are addressed on the odd numbered years).

All divisions of state government make capital requests for funding
through the Capital Budget System (CBS), which is managed by the
Department of Finance. The CBS is a computerized, online system, with
controlled access. The CBS is composed of the following components:
strategic planning, project narrative, project costs, project detail,
and project analysis.

Strategic planning includes a review of an agency's mission statement,
trends and policies affecting the demand for its services, facilities or
capital programs, long-range strategic goals, and assessment of its
current facilities and assets, and a review of the agency's capital
requests in the previous six years. The project narrative includes a
project description and rationale, including the project's history,
program, and purpose, as well as an assessment of the impact on the
agency's operating budget. Project costs must include a spreadsheet with
cost estimates for property acquisition, predesign, design, project
management, construction, relocation expenses, and occupancy. Project
detail includes costs to changes in operating expenses, previous
appropriations to the project, and any statutory requirements. Finally,
the project analysis is where the project requesters and the project
reviewers interact, and includes the strategic scoring and prioritizing
steps. (For more on this system, see
<http://www.budget.state.mn.us/budget/capital/index.html.>)

**Utah**

Utah uses two bonding mechanisms for property acquisition. The state is
one of only a handful whose general obligation bonds are triple-A rated,
according to one official. This allows the state to keep its debt
structure for facilities down to three to four years.

The state also uses lease revenue bonds. These are used in circumstances
where, for example, an agency is in a leased building with a rent line
in its budget. If the agency receives authorization to build, the Real
Estate and Debt Collection office will take the rent, which is static
for 20 years, after which point the state owns the building. According
to one official, these bonds are well received and considered by the
market to be as close as possible to general obligation bonds.

[Special Impacts of Budget Shortfalls]{.underline}

Utah's Division of Facilities Construction and Management (DFCM) is not
facing any staff reductions, but some work will be deferred. Other
agencies, facing budget cuts, may want to consolidate and shrink the
amount of space they lease. DFCM's Real Estate office will pursue
strategies to deal with those space needs, moving agencies around in
leased space. However, exiting a lease is a last resort and
renegotiating leases is not simple. The stability of state finances
allows the agency to negotiate good, tenant-oriented contracts;
therefore, during a budget shortfall, it is not feasible to claim
hardship and improve the terms.

In Minnesota, officials noted that agencies seeking new construction
approval might increase their demands for the services of the Division
of State Building Construction. With the budget shortfall this year,
legislators used the quality of the predesign documents of requesting
agencies as criteria for approval. To succeed in this process when
resources are scarce, more agencies may seek assistance from the DSBC to
create better predesign documents.

######## 5. CUSTOMER FEEDBACK

To assess customer service in Maryland, the Office of Facilities
Planning, Design and Construction of the Department of General Services
distributes surveys four times during each project -- after program,
design, construction and warranty phases. The surveys are designed to
capture feedback from different players -- for example, capital planners
after design, customers or maintenance crews after construction -- to
determine their view of how the previous phase worked. This gives the
agency information to make better decisions. Through this process, for
example, the agency may learn from a maintenance crew that the air
filters as constructed are difficult to access and therefore not easy to
maintain. The agency could make sure to make appropriate changes in the
future.

Additionally, the Office holds an end-of-project review at the
completion of every project over \$500,000. At this meeting, key
stakeholders discuss design, changes in construction, lessons learned
for future projects, any potential legal actions that might be needed
against architects or contractors, etc. This allows the agency to make
conscious decisions for the future, and helps prevent problems.

####### 6. OTHER FACTORS {#other-factors .unnumbered}

[Maryland:]{.underline}

Relevant agencies in Maryland are operating with tight staffing due to
budget cuts in the mid-1990s. Officials in several divisions noted that
the cuts forced the agencies to streamline their agencies and do more
with fewer people. The restructuring that occurred also encouraged the
departments to create clearer standard operating procedures, which
sharpened employees' understanding of their roles and tasks and improves
the efficiency of the division.

[Utah:]{.underline}

Leaders in Utah said they share a philosophy of interagency cooperation,
which includes input from as many decision-makers as possible. This is
apparent from the top down, according to one official. Like the U.S.
General Services Administration, Utah's DCFM is an internal service
agency. Its primary clients are state agencies and its mission is to
serve them in a cost-effective manner. One official described his work
in this way: "We're here to provide a service...Let's do it right, let's
do it one time, let's not have to do it again."

####### 7. NEW IDEAS IN LEADING STATES {#new-ideas-in-leading-states .unnumbered}

**Maryland:**

Maryland is pursuing new methods of developing property through
public-private partnerships. The state has offered property to the
development community, which must propose projects for mixed-use,
transit-oriented space, with use by government and retail. Increasingly,
public-private partnerships are being considered for projects on
property other than that which is controlled by the Maryland Department
of Transportation.

The Facilities Planning, Design and Construction division is planning
methods to involve end users more fully in the construction planning
process. Believing that "a good plan helps make a good project," the
agency hopes to have more actual users involved in that planning. In
planning for hospitals, schools and universities, the actual end user is
often not involved at all, and instead administrative officials of the
agency lead the planning. The division is conducting surveys to consider
the best method to expand early input from end users. Because of the
expense of making changes after the fact, leaders believe this will save
the state money while also making the tenants happier when a building
meets their needs.

**Minnesota:**

Minnesota is considering a Post-Occupancy Evaluation (POE) system to
close the feedback loop. After construction is completed and occupancy
has begun, the stakeholders would evaluate how the building functions to
better meet the mission and operate the programming of the agency. (This
would not assess how specific systems function, which would be part of
the new facility management function). Such feedback would help future
design projects. Client agencies would need to fund this step, so the
Division of State Building Construction needs to first demonstrate its
value.

**Utah:**

Utah is just beginning to implement a Construction Management General
Contractor (CMGC) process for some projects. Under this system, the
state asks a contractor what fee it would charge to manage a specific
construction project for the term of the project.

This general contractor then participates from the beginning, attending
design meetings with architects. In this way, the contractor can offer
hands-on feedback about materials and building choices. The contractor
can also give the state frequent cost estimates in choosing materials,
saving money on some while upgrading others. They involve the end users
in these choices, explaining the trade-offs within the constraints of
the project budget.

Previously, an official explained, the state might have started with a
design that an architect would insist was under budget, but when the
state put out an RFP the bids were 20% over budget. In that scenario,
the state would need to scale the project back, which slows down the
process and disappoints the end users of the facility. "Everybody got
irritated," one official said.

The state also has an open book policy in which it may audit the
financial books of contractors it hires. It has begun auditing some
projects under this system. This brings savings to the state. If, for
example, the state believes that an electrical system will cost \$4
million but a contractor hires an electrical subcontractor to complete
the system for \$3.2 million, an audit will help ensure that those
savings go back to the state, not to the contractor. At the same time,
the state offers incentives in the contract regarding delivery date,
quality and price range, offering to share some of the savings with
contractors if they meet certain criteria.

"(Contractors) see if they save money for the state, when they come back
for the next project, they can highlight those savings," the official
said.

**8. RELEVANT WEB SITES**

**Maryland:**

Maryland Department of General Services (DGS):
<http://www.dgs.state.md.us/>

DGS Office of Real Estate:
<http://www.dgs.state.md.us/overview/real2.htm>

DGS Office of Facilities Planning, Design and Construction:
<http://www.dgs.state.md.us/overview/const2.htm>

**Minnesota:**

Minnesota Department of Administration: <http://www.admin.state.mn.us/>

Minnesota Facilities Management Bureau:
<http://www.admin.state.mn.us/descriptions1.html#facilities>

Division of State Building Construction (DSBC):
<http://www.dsbc.admin.state.mn.us/>

Predesign Information:
<http://www.dsbc.admin.state.mn.us/dpm/predesign-info.asp>

Predesign Manual for Capital Budget Projects:
<http://www.dsbc.admin.state.mn.us/pdfs/predesign-manual.pdf>

Designer Procedures Manual:
<http://www.dsbc.admin.state.mn.us/dpm-top/prcmnlix.asp>

Design Guidelines: <http://www.dsbc.admin.state.mn.us/pdfs/desguide.pdf>

Real Estate Management Division:
<http://www.mainserver.state.mn.us/rem/> (under construction)

Minnesota Department of Finance: <http://www.finance.state.mn.us/>

Capital Budgets:
<http://www.budget.state.mn.us/budget/capital/index.html>

Capital Budget Instructions for state agencies, FY 2002-2007:
<http://www.budget.state.mn.us/budget/capital/2002/instructionsagencies.pdf>

Capital Budget System User Manual for state agencies, FY 2002-2007:
<http://www.budget.state.mn.us/budget/capital/2002/cbsusermanual.pdf>

**Utah:**

Utah Department of Administrative Services (DAS): <http://das.utah.gov/>

Utah Division of Facilities Construction and Management (DFCM)

> (a division of the DAS): <http://www.dfcm.state.ut.us/>

DFCM Design & Construction:
<http://dfcm.utah.gov/about/history.htm#design>

Utah Building Board:
[http://buildingboard.utah.gov](http://buildingboard.utah.gov/)

Utah State Building Board's 5-Year Year Building Program:
<http://buildingboard.utah.gov/five_year_book.pdf>

9\. CONTACTS

**Maryland**:

Steve Cassard, DGS Deputy Secretary, Office of Real Estate

410/767-4956; Steve.Cassard@dgs.state.md.us

Tom Genetti, DGS Assistant Secretary, Office of Facilities Planning,
Design & Construction

410/767-4214; Tom.GENETTI@dgs.state.md.us

**Minnesota**:

Gordon Christofferson, DSBC Assistant Director of Project Management and
Predesign

651/297-2245; <gordon.christofferson@state.mn.us>

Bev Kroiss, Director of the Real Estate Management Division

651/296-1896; <bev.kroiss@state.mn.us>

**Utah:**

Kent Beers, DFCM Program Director for Capital Improvements

801/538-3418; <kbeers@utah.gov>

Alyn Lunceford, DFCM Real Estate and Debt Manager

801/538-3799; <alunceford@utah.gov>

Blake Court, DFCM Lead Project Director

801/538-3281; <bcourt@utah.gov>

**[APPENDIX 3: OPERATIONS & MAINTENANCE]{.underline}**

A. FACILITY ASSESSMENT & PREVENTIVE MAINTENANCE

## **Michigan's Maintenance Excellence Program**

[Implementation Process:]{.underline}

With the implementation of the state's Maintenance Excellence program,
the department plans to move from reactive to proactive, thus gaining
better control over budgeting and planning. Additionally, by
anticipating problems, the department hopes to prevent some problems and
thereby reduce costs for the state.

One official said the department previously had a good record of
responding quickly to reactive work, but had no program of preventive
maintenance. At the same time, the department had a \$125 million
backlog in deferred maintenance.

The state is about halfway into the five-year process for full
implementation of the new system. The MAXIMO software system is in
place, as is the database. The Job Plans and Procedures team has also
met its goals. However, the DMB has yet to implement significant
segments, including the Supply Chain Management concept and the Safety
module.

One official said that it is relatively easy to implement the preventive
maintenance portion of the program. However, the Supply Chain Management
system presents a more difficult challenge and will also lead to more
significant improvements. According to this official, the industry
average for maintenance staff productivity is only about 30 percent. In
a common scenario, staff members must receive a work order, go to the
location experiencing a problem, investigate, travel to buy the specific
parts necessary for the job, then travel back to the location, and
conduct the repair or maintenance work. Through a planned approach, as
exemplified in Supply Chain Management, those staff members would go to
the location experiencing a maintenance problem and conduct the
maintenance work, period. This efficiency saves staff time and it saves
transportation costs for each maintenance call.

Michigan is using a pyramid approach to implementation of the
Maintenance Excellence program. The DMB first launched the Equipment
Database and MAXIMO Computer Information System, which form the
foundation of the pyramid. The implementation will end with the Supply
Chain Management system, which is at the top of the pyramid. The
department considered implementing the entire program, from database to
Supply Chain Management, one building at a time. However, it opted for
the current implementation plan after it assessed that it would be
confusing to maintenance crews who move between different buildings.

The DMB directed a system-wide maintenance inventory of all six million
square feet of state-owned space. An outside consulting team conducted
the inventory, which took six months to complete. The department opted
for outside consultants who worked together during the course of the
six-month inventory, an official said, because it wanted consistency
from one set of eyes rather than from different teams of people. As this
was conducted, the department updated the maintenance status information
for the database building by building. The database now contains
complete information on all buildings. Officials in Michigan said they
do not plan to conduct another system-wide inventory in the future.
Instead, internal maintenance engineers, planners, and tradespeople
assigned to specific buildings will be responsible for inspecting the
property and updating the inventory. Without such in-house tracking, one
official said that the original inventory would quickly lose its value.

[Results/Benefits of Implementation:\
]{.underline}One of the most powerful aspects of this system, said one
official, is its ability to generate meaningful data about the needs for
staff, money, problem areas, deteriorating buildings, and more, all in
real-time. Because service staff members often dislike paperwork,
according to one official, the state has moved to a system using
handheld devices. The personal digital assistants (PDAs) guide the staff
member through a series of direct questions regarding the maintenance,
requiring the user to simply check boxes in response. Because they are
portable and easy to use, maintenance staff generally complete this step
immediately after finishing the maintenance job, assuring that the
information is more accurate and complete than ever before. At the same
time, this means that all data is constantly updated, serving as a
tremendous help in planning for the future. The department launched the
PDA system in the spring of 2002; PDAs are now in use by approximately
75 percent of the workforce.

The Maintenance Excellence program will provide numerous additional
benefits to the department, its workers, and the agencies it serves,
according to leaders in Michigan. One example is in the area of safety.
When an employee now receives a work order to conduct preventive
maintenance, the order includes a reminder about specific safety
concerns for the assigned task. This safety module can be updated as new
information is learned, and can therefore reduce safety risks for
department employees.

One leader offered an example of the wider impact that preventive
maintenance can have. If the department conducts appropriate preventive
maintenance on an air handler, this will likely lessen the system's
downtime overall. This improves the work atmosphere and productivity of
state employees in the building where the air handler is located. It is
also easier for the department to schedule the time of its employees
when focusing on preventive maintenance rather than reacting to
emergencies.

Tradespeople have not had extensive computer training, according to one
official, so a system such as the one in Michigan requires basic
computer training for a large staff. The training must be ongoing and
repeated, not conducted on only one occasion. The program must be
implemented gradually, to ensure that it is done correctly. All of this
requires staff members to buy-in and support the new vision, and a
belief that it will improve the ability to do their jobs well. "Don't
expect overnight success," cautioned one official. Additionally, because
the effort is so extensive, top leaders in the agency and state
government must support the effort.

After its complete implementation in two to three years, the Maintenance
Excellence program "will become simply the way we do business -- it
won't be seen as a new model" anymore, one official explained.

Based on reports from building managers, Department of Management and
Budget officials said that the system is reducing the number of lighting
service calls. Generally, the agency spends a lot of time responding to
lighting service calls after bulbs burn out. Using the new system, the
agency knows when bulbs are at the end of their useful life, and
maintenance employees replace the bulbs just before they are scheduled
to fail. This leads to few service calls, lowering the reactive time,
which allows the agency to better coordinate staff time and save money.
While the state does not yet have formal cost saving figures, building
managers report that it has led to a real and noticeable improvement to
how they do their work.

Some savings will never be fully identified. Prior to the new system,
without its powerful database, the agency did not have a comprehensive
knowledge of how it spent its time. Without that baseline from before,
officials said, it is not possible to measure the improvements of the
new system.

## **Missouri's Maintenance Software and Evaluation**

[Description of Product:]{.underline}

The state purchased the MS 2000 software five years ago. The Division of
Facilities Management (DFM) then spent two years gathering and loading
information into the program. The division trained all staff in the use
of the software and brought it online in smaller facilities to conduct
pilot tests.

During the building operations team's weekly evaluation meetings, the
team notes any workplace safety concerns such as slips, trips, and falls
in buildings. The meetings also include a review of customer service
issues, discussing feedback from building tenants as well as the impact
planned maintenance will have on tenants. The frontline building
supervisors are responsible for raising priority maintenance issues in
their jurisdiction. One official said that the meetings of the 25 to 30
supervisors create competition to maintain buildings and property.

According to an official with an agency that is a major tenant of the
Division of Facilities Management, the communication and meeting system
between the Division and its office buildings functions well. One person
is designated from the agency to serve as a liaison with the Division,
attending weekly meetings and communicating between meetings by phone
and e-mail. The official said the Division is responsive to trouble
calls and the lines of communication are clear.

The team also measures incoming trouble calls during its weekly
meetings. The DFM tracks these against previous calls, to assess any
pattern of maintenance needs or complaints. For example, one building
may frequently receive calls from tenants complaining that the
building's temperature is too cold. The DFM may discover that these
calls continue to be received even after maintenance staff members have
responded several times to previous calls by adjusting the thermostat.
The DFM will determine that a larger investigation into the problem
needs to be conducted, to ensure that the complaint is solved more
permanently. "We help unravel those problems," said one official.

Officials in Missouri said the state is trying now to focus on
preventive maintenance, and these systems assist with that goal.
Division officials said they believe they offer valuable services and
preventive maintenance to their tenants because many state agencies
prefer to be located in state-owned property, which is managed by the
Division of Facilities Management, rather than leased space managed by
private companies because the tenant services and response time to
maintenance, cleaning, and security issues. One tenant noted that
preferences vary based more on the quality of space rather than whether
it is state- or privately-owned.

One area undergoing changes for cost efficiency is staffing decisions.
About 10 to 15 years ago, the agency expanded the number of in-house
craftspeople responsible for repairing and maintaining facilities. At
the time, this was a trend in the industry and the most cost-effective
method for service delivery. Officials said they need to re-examine this
idea as the industry and economy change.

The state formerly housed both maintenance and design/construction
functions within one agency. Officials at the current Division of
Facilities Management said they believe that a1993 decision by the late
Governor Mel Carnahan to split the functions in two has contributed to
the success of both agencies. By breaking down the bureaucracy and
encouraging participatory management, they believe the agencies are more
productive and save more money.

The state has instituted a new system of incentives in energy
management. If the DFM saves money through energy efficiency, the agency
can redirect those savings to additional energy saving measures. In the
past, the agency would have been required to send the money saved back
to the state general fund. The new method offers the agency's staff an
incentive to be inventive. "We can't reward staff financially like the
private sector," one official explained, but if the maintenance staff
members are respected and praised by tenants in state-owned facilities
"it's a great morale booster."

## **Utah's Capital Facilities Assessment**

To date, Division of Facilities Construction and Management has assessed
approximately 30 million square feet of its 38.7 million square feet
inventory. Some of the property not yet assessed is auxiliary space that
will be assessed in the future and some is storage property that will
not be assessed.

Based on this process, Utah has estimated the following maintenance
needs:

Immediate maintenance needs: \$192 million

5-year maintenance needs: \$470 million

10-year maintenance needs: \$234 million

The information from the conditions assessment is stored in a database.
DFCM will lead efforts to keep this information current and to meet the
identified maintenance requirements. Using these internal mechanisms,
the DFCM currently plans to regularly assess the status of maintenance
needs in-house rather than conduct full assessments by outside
consultants in the future. The agency may utilize third-party
consultants in the event that there is a difference of opinion between
an agency and DFCM.

The state's Building Board, which is the policy agent for facility
construction, uses this assessment when reviewing annual capital funding
requests from agencies. Requests for all state-owned property must go
through the Building Board. According to one official, the board has
adopted a policy that if a request falls outside the parameters of the
baseline, there is a vigorous argument before it receives approval. An
agency submits its request to the Building Board; the DFCM evaluates
those requests and reviews it with the requesting agency before making a
judgment. There is an opportunity for the agency to dispute the
conclusions of the DFCM. The entire process occurs in an open, public
forum, and is "quite extensive" according to one leader.

During the fiscal year that ended June 30, 2002, the DFCM based 100
percent of its decision-making on the conditions assessment.

This process has significantly altered the way that Utah decides its
maintenance priorities and funding. Before this process was launched
four years ago, one official said that the state "couldn't assess
needs."

> "An agency would come in, and tell us horror stories about some
> problem. The Building Board would consider it. Someone would go out
> and look at it and assess whether it needed repair. It might have been
> able to limp along further, but there was no sense of priorities. So
> we'd fund it. Meanwhile, by virtue of some failure or some emergency,
> we'd discover some other more pressing problem, which would also get
> funded."

Under the new system, the state is able to prioritize and plan for
upcoming maintenance needs. "Now, we're making brighter and better
decisions," said one official.

The entire system will be linked through a live database. If, for
example, a state agency conducts some maintenance itself, it will update
that information in the computerized facilities management program,
which then takes that project off the maintenance list. The DFCM and all
the buildings it manages are using the database, meaning that
approximately 20 percent of state property is on it. The agency will add
other buildings to the system slowly, ensuring that all systems are
functioning properly and additional support is available. The DFCM plans
to include all agencies on the system within three years. The state
already bought the license to the software, so any potential budget
changes for the agency would not affect implementation of this project.

When the state determined several years ago to overhaul and improve its
maintenance delivery system, the state reviewed several programs. Among
these were the system at Livermore Laboratories in California and the
one in place within the Church of Jesus Christ of Latter Day Saints
(LDS). The LDS system, which coordinates churches around the world as
well as university campuses, served as the model for the state's new
program. According to one official, the LDS Church system identifies all
facility needs in an ongoing way and based funding and program decisions
on those identified needs. From its maintenance budget, it set aside in
a sinking fund a certain amount per square foot; this may need to be
used for repairs, but may be put toward savings if maintenance is
administered properly.

The state saved money while conducting its conditions assessment by
using an external team. According to one official, it would have been
too costly for a state the size of Utah to have on staff a team of
engineers and architects dedicated to conducting the facilities
assessment. Instead, they hired the ISIS Corporation of Atlanta at a
cost of about 10 cents a square foot, assessing tens of millions of feet
at once.

One official described the new system as one that reflects "a corporate
philosophy in a public setting" and could be implemented in other
states.

# [Utah's "Campus versus Shops" System]{.underline}

Utah has altered the way it delivers maintenance services throughout the
state. It now divides facilities by campuses rather than shops, with a
facility coordinator assigned to each campus. According to one official,
the department is "philosophically moving away from shops," which
formerly included a shop of plumbers, electricians, HVAC experts, etc.
This leader explained that shops tend to operate individually, with work
orders issued by each shop. This creates a system whereby the employees
"become loyal to a discipline, not to a facility or a corporate
philosophy." While the DFCM continues to have a few electricians and a
few plumbers, the agency is now more likely to employ generalists rather
than specialists. These staff members have expertise up to a point, an
official explained, but if a problem requires assistance beyond that
expertise, the state contracts outside assistance.

The department does maintain high-level HVAC staff, according to one
official, because the state has so much to save through energy
conservation within these systems. Since HVAC systems are such large
energy users, the state "can save big dollars" through efficiency. (See
below for a further discussion of cost savings through these systems.)

### **Other Systems**

Utah's DFCM follows a corporate philosophy for service delivery
identified as TTOMM, described as follows:

-   **T**rain people to operate equipment/buildings as they are intended

-   **T**une equipment to design specifications

-   **O**perate to design specifications

-   **M**aintain to design specifications

-   **M**onitor to determine if any of the above need alteration, engage
    in constant re-evaluation

The department offers incentives including "aggressive salary increases"
to employees to receive training, an official said. The agency has a
lower turnover rate than other agencies in Utah and than agencies in
other states, according to one official. At most companies or agencies,
said this official, operations and maintenance staff are not high in
status. Those organizations instill a culture where staff believe,
"that's just the maintenance guy." Such a culture undermines the pride
and productivity of maintenance staff. In Utah, the DFCM emphasizes that
its staff members are important to the overall health of the state, and
their actions affect, for better or worse, the working conditions of
state employees.

Because of its internal philosophy, the agency has a reputation as a
workplace that cares about its employees and its service. "I believe an
agency is only as healthy as the people who work at it," one official
said.

# 2. BUDGETING & FUNDING PROCESS

**Michigan:**

Like most states, Michigan is experiencing tightened state finances.
Officials in the Department of Management and Budget's Infrastructure
Services Division did not yet know how the budget shortfall might impact
the division's work. They believe the department may need to conduct its
mission with fewer staff people and less money, but it has not yet been
finalized.

**Missouri:**

In 1996, the Missouri Division of Design and Construction proposed a
state constitutional amendment to voters to create a set-aside fund for
times of budget shortfalls. Voters passed the measure, which is now law.
The state must set aside .05 percent of Missouri's general revenue each
year for the Facilities Maintenance Reserve Fund (FMRF), which is used
to fund maintenance and repair projects of a predictable nature for all
facilities statewide. Examples of such projects include HVAC systems
that have reached the end of their useful life, roof replacements,
exterior and interior repairs, and general physical plant infrastructure
repairs and replacements.

However, Missouri, too, is suffering from the effects of the economic
downturn. Dramatic budget cuts had just been announced and departments
are still determining the impact of such cuts on their missions. In
addition, the governor is authorized to transfer the maintenance and
repair fund money cited above to the responsible agencies.

**Utah:**

By state statute, the Utah legislature must fund a specific set-aside
for capital improvements of state facilities. Two years ago, the state
funded these activities at .9 percent, last year at 1 percent, and the
current amount is 1.1 percent of the value of existing state-owned
buildings. The State's Division of Risk Management estimates the
replacement costs each year for all state buildings, and the DFCM is now
funded at 1.1 percent of that value.

Based on this formula, the state legislature this year funded the DFCM
at approximately \$50 million. As highlighted above, DFCM determined
through its Capital Facility Assessment that the state has \$192 million
in immediate needs. The \$140 million difference between funded
maintenance and immediate needs is therefore placed on the deferred
maintenance list.

While this would seem to lead to an ever-increasing deferred maintenance
list, some projects fall off the list as well, an official said. For
example, an old building in Salt Lake City may require significant funds
for capital improvements and may be on the deferred maintenance list.
However, the state may decide at some point to conduct a complete
remodel or demolition and rebuild of that building. Its previous
operations and maintenance needs would then be removed from the deferred
maintenance list. According to one official, the items on the deferred
maintenance list reflect a "constant balancing act" for the resources of
DFCM.

A DFCM official said that if the set-aside had been in effect since "Day
One" -- when operations and maintenance of state-owned buildings first
began -- the current level of 1.1 percent of replacement value might be
sufficient to meet the needs. However, the set-aside is new and
therefore maintenance has not kept pace with past needs. The DFCM
estimates that to catch up to the deferred maintenance needs of the
state, the department would need twice the current amount.

However, like many states, Utah is facing tough times in its state
budget. Instead of receiving an increase in its budget from the
legislature, the DFCM believes it may suffer cuts dropping it back to
the previous amount of .9%. This could be especially challenging for
Utah because it is a high growth state. The state estimates that it will
double its current population (2.2 million) by 2020. Therefore, one DFCM
official noted that it is imperative that the state maintain its current
properties and build more efficiently in the future. Therefore, state
officials said they hope that any budget cut will be temporary rather
than permanent.

# 

# C. FEEDBACK

**Missouri:**

In Missouri, the Division of Facilities Management coordinates meetings
with tenants at least quarterly and sometimes monthly, and conducts
surveys of all the buildings twice a year. Agency Facility Coordinators
meet with key representatives of each department. The agency
communicates with its clients and employees through its monthly
newsletter and other systems.

A major tenant of the DFM said that Division officials are active
leaders in problem solving, in urgent and more commonplace situations. A
critical example was the response to the terrorist attacks of September
11. The major state office building did not have a building-wide badge
system prior to September 11. The attacks moved the building from one
that had virtually no security to one that was very secure. DFM
coordinated that system relatively quickly, according to a tenant. On a
more common facilities topic, the tenant explained that after some
employees complained that smokers on break left a mess of cigarette
butts and a blue haze of smoke right outside the office door, DFM
convened a committee to create new guidelines. Importantly, the Division
leader invited smokers to participate in the process, leading to new
policies that were well received.

**Utah:**

In Utah, DFCM conducts quarterly surveys of its employees and customers
in state-owned buildings. Additionally, the agency maintains an
operations representative group, which is a venue for rank and file
employees to communicate their needs and make recommendations regarding
equipment, working conditions, and more. One official said this process
generates many ideas for improving agency systems, while at the same
time it sends a signal to employees that the agency "respects them as a
legitimate information source."

**4. RELEVANT WEB SITES**

**Michigan:**

Michigan Department of Management and Budget (DMB):
<http://www.michigan.gov/dmb>

DMB Infrastructure Services:
<http://www.michigan.gov/dmb/1,1607,7-150-9152---,00.html> \[web site
under construction following agency reorganization\]

Vendor: Life Cycle Engineering, Inc.: <http://www.lce.com/index.htm>

**Missouri:**

Missouri Office of Administration (OA): <http://www.oa.state.mo.us/>

OA Division of Facilities Management:
<http://www.oa.state.mo.us/fm/index.shtml>

OA DFM State Owned Building Operations:
<http://www.oa.state.mo.us/fm/bldgops.htm>

**Utah:**

Utah Department of Administrative Services (DAS): <http://das.utah.gov/>

Utah Division of Facilities Construction and Management (DFCM)

(a division of DAS): <http://www.dfcm.state.ut.us/>

DFCM Facilities Management:
<http://dfcm.utah.gov/about/history.htm#facilities>

5\. CONTACTS

**Michigan:**

Okey Eneli, Director, Infrastructure Services

517/373-3670; EneliO@michigan.gov

Keith Paasch, Director, Operations

517/373-0185; <PaaschK@michigan.gov>

**Missouri:**

Linward Appling, Director of the Division of Facilities Management

573/751-1034; <facmail@mail.state.mo.us> (division e-mail address)

Mark Allen, Assistant Director of the Division of Facilities Management
for Building Operations

573/751-7835; <AllenM@mail.oa.state.mo.us>

**Utah:**

Jack Quintana, DFCM Program Director of Facilities Management

801/538-3300; <jquintana@utah.gov>

Kent Beers, DFCM Program Director for Capital Improvements

801/538-3418; <kbeers@utah.gov>

**[APPENDIX 4: WEB-ENABLED SOFTWARE]{.underline}**

A. PLANNING & CONSTRUCTION

### **Washington's Public Works Bidding Process**

The Engineering and Architectural Services (EAS) section of the
Washington State Department of General Administration uses an advanced
web-based software system to streamline the process for soliciting
public works construction bids.

Created and managed by a private company -- the Builders Exchange of
Washington -- the FastBid™ software allows web access to an entire bid
package, with drawings and all details. (See:
<http://www.ga.wa.gov/eas/easvend.htm>, click on "Current Projects
Advertised for Bidding." First-time users will need to download the free
software.)

An official in the EAS section said he spent five years testing other
systems, looking for a web-based system that was easy to use and
required little or no change in the way that contractors do their
business. He thought one system used by the Army Corps of Engineers was
a good start, but because it was on a CD-ROM, it required that users
have all software on their system. This made it impossible to use on the
Internet with a slow speed modem, which he thinks is critical to a
system's ease of use.

"I was seeking a system...in which no one in the industry had to change
anything about the way they do things," the official said. The EAS
section eventually worked with the Builders Exchange of Washington to
ensure that the new FastBid™ software met the needs of both the state
agency and private contractors.

For those entities soliciting bids, such as EAS, there are no additional
steps and only a nominal cost. The agency simply adds the Builders
Exchange to its regular list of plan centers for bid package
distribution and the company does the rest, scanning and transferring
all materials onto the Internet. For contractors wanting to respond to
bids, they need no special computer systems and pay no fee. With this
system, contractors also don't need to physically go to the plan center,
because they can print all materials on their own computers and order
any prints they might need online.

The system has numerous high-performance functions that enhance its ease
of use. For example, if a user wanted to see a large blueprint drawing,
the system immediately downloads a thumbnail appropriate to the user's
request while downloading the full drawing in the background. "There are
some really elegant things going on with this system," explained the EAS
official.

The EAS created a mock script of what an average contractor might want
from a bid pack to test various systems before the creation of FastBid™.
In those tests, it took 33 minutes to complete the entire script on the
best system. With FastBid™, the same test script took only 11 minutes.
In his view, this performance meant that FastBid™ "crossed a threshold
from a toy to a real tool."

This official hypothesized that the obstacles to solving problems are
approximately "10% technological and 90% political or cultural." While
the software is simple to use, its greatest value is in the fact that it
requires no changes in the way the industry does business.

FastBid™ is currently primarily a regional system, although anyone in
the country could use it. General contractors pay a fee to place their
projects online, in a password-protected manner, so that subcontractors
may bid on projects.

The cumulative goal of this system is to move away from paper and keep
as much as possible online. Contractors can still order specific prints,
but the contractor would pay for those rather than the state needing to
provide numerous copies. An online system would also save time. When
using a paper system, it often takes approximately one month to bid a
project after all the materials are available. About one week is
allotted for delivery time, after the drawings and advertisements are
sent to the plan centers. At least two to three weeks is allotted for a
view period, when contractors make time to go to the plan centers to
review the bid packs.

When all participants are fully using the online system, the EAS
official said the time to put a project out to bid would be cut in half
at a minimum. The first week is eliminated, because the bid pack is sent
by e-mail to the Builders Exchange, which will post it immediately on
the Internet. And because everything is available instantly and
contractors don't need to go to the plan centers, this eliminates
another one to one-and-a-half weeks. This will save time and money for
the agency, and will likely improve the quality of the bids if
contractors have a bit more time to complete their proposals before the
deadline.

### **Capital Assets Planning System in Texas**

The Computer Aided Facility Management (CAFM) Office of the Texas
Department of Mental Health and Mental Retardation Capital Assets
Planning System (CAPS) uses VFA Facility software for strategic planning
purposes.

An official with the CAFM office said this system saves numerous hours
of work. Under the previous system, producing a capital needs request
took approximately 120 weeks of full-time staff work. With the new
system, the process uses approximately 9 to 10 weeks of full-time staff
work. The savings there alone paid for the entire system in one year,
this official said. That reduction was realized not as budget money
saved, but instead as money offset to higher-priority work.

This system also contains the Department's deferred maintenance list.
Through a combination of physical inspections and computer modeling of a
building's life cycle and the life expectancy of its components, CAPS
updates the percentage of life remaining in all major building systems,
such as heating, cooling, plumbing, and electrical. CAFM officials can
then use this system to produce graphs and estimate the costs to
maintain facilities "for today, tomorrow, ten years from now." This is a
planning tool for large projects, and is not the system used for daily
maintenance and work orders. (See below for more on that system, called
FacilityCenter™).

Ideally, one official said, it would be best to conduct an independent,
outside reassessment of a building and its systems every three years.
However, that is a time-consuming and expensive process, so the
department streamlined the system. Building and plant managers conduct
an internal inspection each year, and the CAFM office has requested that
they update any changes apparent in the current conditions compared to
those listed in CAPS. The department prioritizes those buildings in
which patient beds and other client needs are located over those
buildings that contain support services.

The web-based software is a product of VFA, Inc. CAFM officials
described the company as extremely responsive to the Department's needs
and it has solicited CAFM Office input when upgrading the software.

Forecasting that the systems needed by the Department would also be
useful to other agencies, CAFM officials spent a significant amount of
time planning at the beginning of the process. The office wanted to
ensure that the standards, conventions, and guidelines used for the
system would be appropriate for any agency, not just the Department of
Mental Health and Mental Retardation. "That took more time, but it was
worth it," said one official. The Department also included a clause in
contracts with this and other companies that allows any state agency to
piggyback on a CAFM contract. This allows other agencies to implement
the CAFM systems in the course of possibly 60 days rather than the six
to nine months it originally took CAFM.

The Office of the State Comptroller reviewed the Department's asset
management systems, and published a report a year ago recommending the
CAFM system to all state agencies. A CAFM official said that at least
two other state agencies are interested in implementing the system, but
budget shortfalls are currently an obstacle.

# B. MAINTENANCE & MANAGEMENT

### **Buildings on a Disk**

The Engineering and Architectural Services section of the Washington
State Department of General Administration has created a system known as
"Buildings on a Disk," which provides a snapshot of all maintenance
materials for a building.

EAS staff members go out to facilities, work with facility managers and
their staff members to identify all relevant maintenance documents.
These include architectural drawings, maintenance manuals and all other
documents that maintenance staff members use regularly. One facility had
three file cabinets filled with operations and maintenance manuals.

Materials are sorted, duplicates and old manuals are removed. EAS
officials then talk with maintenance staff about how the information is
used on the job. They ask how the maintenance crew would like to view
the manuals and drawings.

"Each facility has its own culture," an EAS official observed. "We want
this to work for the way they do business." EAS then scans the materials
into a PDF environment, indexing all materials with cross-links.

An official described a possible scenario:

> "You might have a project you call up, with an index of drawings. A
> hotlink from there would bring you to the drawing itself. A link from
> the drawing would bring you to an electric panel... a link from there,
> to the panel's schedule...a link from there to the operations and
> maintenance manual for that specific panel."

EAS places all this material onto a CD-ROM. This material could also be
placed on an Intranet with a few modifications. Along with producing the
CD-ROMs, EAS also shows agencies how to update and maintain the
information. However, an official with EAS said that most agencies tend
to ask EAS to update the information about a year after the first disk's
creation.

EAS has completed the process for 50 to 60 facilities in the past one
and a half years, with the pace recently quickening. The division now
has four full- or part-time people working on this project, completing
two facilities a week. There is no current plan to create a Building on
a Disk for all state facilities. The facility requesting the Building on
a Disk must reimburse EAS for its services, so the level of work for EAS
is dependent upon other agencies' funds and priorities.

### 

### **FacilityCenter™ in Texas**

In seeking a single software package that could order materials, handle
lease management, manage maintenance and operations, and produce work
orders, the Computer Aided Facility Management (CAFM) Office of the
Texas Department of Mental Health and Mental Retardation had the
following three key criteria:

1)  Out of the box solution. The Department did not want to spend any
    time customizing it.

2)  Oracle database solution. The Department wanted an Oracle system
    that could run on the low-end computer workstations that most staff
    used. This eliminated a CAD-based solution, which would have
    required new workstations and monitors and training for 300 to 500
    people.

3)  Integrated enterprise solution. The Department wanted a single
    system in which data would need to be entered only once, not in
    multiple locations. It demanded a single menu, without multiple
    systems cobbled together.

The Department contracted with the only company that had a software
package that met its criteria. The software is called FacilityCenter™.

Recently FacilityCenter™ was purchased by Tririga, Inc. to incorporate
it into its Intelligent Business System™, a centralized, web-based
system to manage key aspects of an asset's lifecycle. CAFM officials
reported that the company has offered excellent support and also
solicits CAFM Office input when upgrading the software.)

"It's a good system that is easily supported," one official said. "It
includes all the components you could want." The software includes other
components that the Department has not yet implemented due to budget
shortfalls. The software needs to handle a high volume of work. The
Department has identified 70,000 pieces of equipment that it calls
"PM-able" (i.e., those on which preventive maintenance should be
conducted). Each piece of equipment needs routine maintenance, which
must be scheduled in the FacilityCenter™ system. The Department
generates 350,000 to 400,000 work orders each year. On average the
Department has 100 concurrent online users on the system.

A project manager from Peregrine Systems worked on site for about one
year to assist the Department in implementing the system, the bulk of
which was handled by in-house CAFM staff.

The system manages the work order system through Palm Pilots,
eliminating printed work orders. Works orders and assigned tasks are
downloaded onto the personal digital assistants (PDAs) at the start of
the day. The Department is currently using about 300 PDAs, but an
official said another 400 more are needed. CAFM staff estimate that
through the use of the PDAs, the Department has eliminated 50 to 60
percent of its data entry time.

The CAFM Office trained one to two people in each facility in how to use
and synch the PDAs. Officials said the system did not require much
training of the end users, because FacilityCenter™ uses direct drop-down
menus and lists. An official said that virtually all maintenance staff
members embraced the new tool, and very few fought against its
introduction. In fact, staff members were "like kids with new Christmas
bicycles" after they received their PDAs, according to one official.

Officials said that records are now more accurate and more complete and
contain few data transcription errors that previously plagued some
reports. There is now more data integrity.

According to agency documents, the most important benefit of the entire
CAFM system in the Texas Department of Mental Health and Mental
Retardation is the provision of well-maintained, code-compliant
facilities for the agency consumers, clinical health providers,
patients, clients and families served in the 22 hospitals and schools.

The Texas Department of Mental Health and Mental Retardation CAFM Office
has received numerous awards for its program, including the "National
Innovations Award" from the National Association of State Facilities
Administrators (NASFA) in March 2002.

# C. NEW IDEAS

In Washington, the Real Estate Services (RES) section is trying to get
formal approval for a new system that will proactively distribute e-mail
announcements to those companies with which the agency does business.
Rather than waiting for companies to review the RES web site's
announcement of space needs, the system would distribute the
announcement to all who sign up for the list. The system could also be
used to announce internally when an agency needs to reduce its space and
is seeking another agency to take over its lease.

The Washington RES section also plans to enter all client agencies in
GA-owned space into the Lease Inventory System (LIS), creating a
formalized internal lease agreement for state-owned space. While the LIS
system will be up and running this fiscal year, it will likely take
another two years to have all clients entered into a formal lease with
the state. The RES section is currently operating on a facility and
service charge method, but it wants to shift to a rental system, similar
to that on the open market (although the state space is a bit less
expensive than the private sector). In that way, the RES can set up
reserve accounts as in the private sector. According to one official,
Tennessee is the leader on this system, although it charges full market
rates. Right now, the Department of General Administration must seek
approval and funding from the state legislature for every capital
project, which is a lengthy process. This shift would move the
Department toward a private sector model, with reserves for capital
projects. Additionally, putting all state-owned space on the LIS system
will facilitate improved coordination between those who manage
state-owned space and those who manage leased space. The various
divisions that would be linked include RES (leased space), the Division
of Capital Facilities (daily management), and Capital Programs
(long-range asset management).

An official with the Washington Engineering and Architectural Services
(LEAS) section said he is speaking with fire marshals around the state
regarding the possibility of using Buildings on a Disk to assist in
emergencies. If EAS completed the process for every school in the state
and then put all that information on one master computer file, this
could assist fire marshals and other emergency workers in case of an
emergency in the schools. It would give clear guidance to the structure
and systems of the schools. However, following the terrorist attacks on
September 11, some participants expressed concerns about making those
details available in a way that might not be fully secure. They are
considering ways to make the information secure yet accessible to key
emergency personnel. Also, there may be other uses for the Building on a
Disk system that have not yet been identified.

The EAS is developing an Internet Contracting System, a package of
online registration for contractors, consultants and vendors. It plans
to create a system within one year in which any contractor in the state
can go online, register for the small works roster, and receive online
notification of all government construction projects.

This would send materials proactively to contractors, rather than
assuming that they will all go to the EAS web site. For example, for a
specific project the state might want to make sure that all contractors
in a given county who have more than three years experience in roofing
receive notification. With the new system, EAS could search the database
to identify those contractors meeting the criteria, put the notification
into the system, and distribute to the list. The notification would
include a hotlink to the Builders Exchange of Washington site for all
the drawings and specs.

# D. RELEVANT WEB SITES

## **Texas**

Texas Department of Mental Health and Mental Retardation:
<http://www.mhmr.state.tx.us/>

[Vendors]{.underline}:

Graphic Systems (facility management technology company in Cambridge,
MA): <http://www.graphsys.com/>

Tririga Inc. (FacilityCenter™ infrastructure management software):
[http://www.tririga.com](http://www.peregrine.com/)

VFA, Inc. (provides web-based software systems and business consulting
solutions for professionals involved with facilities management):
<http://www.vfa.com/>

Case Study on Texas DMHMR: <http://www.vfa.com/clients_texas.htm>

## **Washington State**

Department of General Services:
[http://www.ga.wa.gov](http://www.ga.wa.gov/)

Real Estate Services section:
[[http://www.ga.wa.gov/DRES/index.html]{.underline}](http://www.ga.wa.gov/DRES/lessor.htm)

Real Estate Services Current Solicitations:
<http://www.ga.wa.gov/DRES/LeasedSpace.htm>

Engineering & Architectural Services section:
[[http://www.ga.wa.gov/eas/eas.htm]{.underline}](http://www.ga.wa.gov/DRES/LeasedSpace.htm)

Current Projects Advertised for Bidding:
<http://www.ga.wa.gov/eas/easvend.htm> (click on "Current Projects
Advertised for Bidding") or <http://www.ga.wa.gov/servlet/EASBidCalSv>

[Vendor]{.underline}: Builders Exchange of Washington:
[http://www.bxwa.com](http://www.bxwa.com/)

# 

# E. CONTACTS

# Texas

Lloyd Kennedy, Manager, Computer Aided Facility Management (CAFM)
division of the Department of Mental Health and Mental Retardation.

512/206-5882; <lloyd.kennedy@mhmr.state.tx.us>

Ulrike Kennedy, Director, CAFM

512/206-5265; <ulrike.kennedy@mhmr.state.tx.us>

# Washington State

Mark Lahaie, Manager, Real Estate Services division of the Department of
General Administration.

360/902-7386; <mlahaie@ga.wa.gov>

Kip Eder, Engineering and Architectural Services division of the
Department of General Services.

360/902-7233; <keder@ga.wa.gov>

**[APPENDIX 5: PUBLIC-PRIVATE PARTNERSHIPS]{.underline}**

A. ARIZONA'S PLTO SYSTEM

The state's Privatized-Lease-to-Own (PLTO, pronounced "Plato") system
was designed in response to a number challenges faced by the General
Services Division of the Arizona Department of Administration (ADOA) in
its responsibility for housing state agencies in the Arizona capital of
Phoenix. General Services had no preventive maintenance program, and the
state legislature was unlikely to fund one. Additionally, the state had
not constructed a building on the capital mall for seven years and
instead had expanded leases for state agencies in private office space
at high and increasing rates.

At the same time, the legislature believed in "pay-as-you-go" methods of
funding, disapproving the use of bonds for construction of state
buildings. The agency had no long-range plan for facilities at the time,
so the General Services Division first conducted an analysis of market
rates, reviewed rates for the previous 10 years and then created a
10-year plan that projected building needs and growth into the future.

This plan included the following key findings, according to one report
by the agency:

-   12 of the largest state agencies representing 57 percent of its
    administrative functions occupied 750,000 square feet of private
    lease space spread over 34 locations in the Phoenix area. This
    fragmented operations and service to the public, and increased
    redundant operations and operating costs.

-   Lease costs for functions that should be located on the Capitol Mall
    were \$10.5 million per year and increasing at a rate of \$1 million
    per year.

-   The state had recognized no residual value for the more than \$70
    million spent on private lease space over the previous seven years.

-   Numerous leases at rates of \$12 to \$13 per square foot would be
    expiring in the next several years and would have to be renewed at
    rates ranging from \$16 to \$20.

-   Population growth projections indicated that there could be a need
    for as much as 950,000 square feet of additional office space over
    the next 10 years.

According to a state official, the legislature agreed that these
findings supported the construction of state-owned property, but the
state did not want to pay the full cost of the buildings up front or
issue bonds for financing.

General Services then considered methods in which a private developer
could finance the construction of the building, then design, build and
operate it on state-owned property, leasing it back to the state at or
below the current state lease appropriation. The building would be
constructed to state specifications, and the state would own it at the
end of the lease term.

"If the developer's bond payment and operations and maintenance costs
are structured to match our current lease payments, it's just a matter
of how many years before we own the building," this official explained.

[Financing Options:]{.underline}

The state called its effort "Privatized Lease-To-Own" or PLTO
(pronounced, "Plato"). The master plan called for 11 new buildings over
a 10-year period, beginning in the first year with the construction of
two buildings totaling 485,000 square feet for the Department of
Environmental Quality and the ADOA.

The state needed its payments to be less than or equal to its current
lease costs. Projections on bond payments indicated that the state could
own the properties within 20 to 25 years, keeping payments below current
lease costs.

General Services worked with a nonprofit community group, the Phoenix
Community Alliance, which is active in efforts to redevelop Phoenix. The
Alliance convened a luncheon with developers to discuss the idea. Some
developers said it was an unattractive plan, and it would not receive
financing. Others, however, expressed interest in bidding on the
project.

The ADOA needed approval from the legislature to move forward with this
new method. Procurement rules at the time required choosing the lowest
bid, which would not have been appropriate to meet the needs of the PLTO
system. The ADOA needed to develop performance specifications for a
Value-Based Selection (VBS) process, and then persuade the legislature
to permit it.

Officials with General Services created a presentation for the
legislature outlining the current and future costs under its leasing
system and the savings and increased assets under the PLTO system. The
proposal emphasized the benefits of the "right service, in the right
place, at the right cost," noting that "we will spend the money one way
or the other. The choice is that at the end of 20 years we can have
nothing to show for it, or we can have a \$100 million asset."

The ADOA estimated that the first phase of PLTO would save \$300,000 a
year from the amount the state had been spending in the private sector
on agency leases. The state would then own the two buildings after year
25. Because the ADOA expects the buildings to have 50-year useful lives,
the state would occupy the buildings rent-free for the second 25-year
period. In total, this phase of the plan would save the state \$70
million during that time.

In estimating these savings, the agency did not include efficiencies and
similar benefits, although they are also numerous, according to
officials. State agencies were spread out all over the city, increasing
the needs for phone systems, travel, time spent moving between spaces
and other inefficiencies.

The agency needed two actions by the state legislature: 1) authorization
for the agency to enter into this contract and 2) exemption from the
state's low-cost procurement law.

Both houses of the legislature unanimously authorized the plan, and the
Governor approved it.

The state issued its RFP in November 1999, defining its selection
criteria and method of scoring, along with the performance
specifications and 30-year cash flow projections. Seven major developers
responded; three were placed on the short list. One of those bids came
from a company that had initially expressed skepticism about the
feasibility of the project.

Some experts suspected that the state's required opt-out clause in the
state leases would lower the bond ratings and therefore interfere with
the RFP process. The clause states that if an agency does not receive
the necessary leasing appropriations from the state legislature, it can
exit a lease. While the clause did present a challenge, officials argued
that the state is not going out of business -- even if the state shut
down an entire agency, it still holds many private leases and would move
agencies from those private properties into the PLTO buildings.
Additionally, private demand for the PLTO space would be high given its
convenient location. In the end, the clause was not an obstacle to the
developer financing the project.

The developer floated the bonds for the building, which are not backed
by the state but instead by the buildings themselves and the state
leases. The developer is providing a turnkey operation, with all
amenities and maintenance included.

In preparing this project, General Services also factored the cost of
major maintenance (or building renewal) into the cost of the lease.
Generally, the agency must seek approval for building renewal funds each
year from the legislature. Although the state has a set formula for this
funding, the legislature regularly funds it at only 25 to 50 percent of
the formula target. By including these costs into the costs of the
lease, the money will be set aside for those purposes and the agency
will not need to seek approval each year from the state.

"So when the state becomes the owner in 25 years, it will take formal
possession of a property that is in good shape because it has been
well-maintained," one official said. It will also avoid adding these
costs to the current list of deferred maintenance.

The developer broke ground on the project on February 21, 2001 and two
state agencies began moving in on July 1, 2002.

The state is now starting a third building in a new phase of the
project, PLTO II. This building will house the Department of Health
Services.

"People said, 'That's a great idea, try it again,'" an official said.

Officials in several states acknowledge that it is difficult to receive
funding from their legislatures for new agency office buildings when
states are suffering financially and there are many other competing
needs. Under the PLTO system, Arizona does not need to choose office
buildings over other services.

"This way, look, we're already spending X amount each year on rent, but
we'll save \$300,000 a year, plus there are all these other benefits.
And after 25 years, we own the buildings. The Treasurer's office asked
what was wrong with this deal; it seemed too good to be true, why
haven't we done it before? Maybe nobody ever proposed it before," said
one Arizona official. In a time of budget shortfalls, this system
becomes even more appealing, the official said. "We're really hurting,
like everybody else, but it won't cost us anymore to do it this way, so
why not continue to do it? In fact, the state saves money and gets good
space in the process."

Arizona previously bought construction based on lowest cost. An official
said such a system might not provide the lowest costs over the life
cycle. Because of the PLTO system, the state now can engage in
value-based selection and quicker design/build procurement.

"We built the buildings in 15 months," the official said. "Design/build
is so much faster than design/bid/build. This was a real plus."

The official said that the project is really not that difficult, except
that it requires a complex contract. While the first phase required six
months for ten attorneys to structure the contract, the second phase
used that model and now it is a simple step.

"The structure is unique maybe for state governments, but not unusual in
the private sector," according to this official.

According to one official, most tenant agencies did not initially want
to move to the new space. In the past, there was a perception that state
office space would be substandard. Now, however, employees acknowledge
the space is very nice. In PLTO II, the Department of Health Services is
extremely enthusiastic to move to a new building.

Many organizations in the field have recognized and given awards to the
Arizona PLTO project. ADOA officials have been invited speakers at
conferences of the National Association of State Facilities
Administrators (NAFSA) and the National Association of State Chief
Administrators (NASCA), among others.

The ADOA General Services Division manages construction for the state,
including corrections, schools and hospitals -- everything except
projects for the Department of Transportation. The agency provides
maintenance for all buildings on the Capitol Mall and major facilities
elsewhere. It also handles all leasing for state agencies.

B. WASHINGTON'S LAND SWAP

The Washington State Patrol conducted a land exchange in which it traded
property with old buildings for a new property with new built-to-suit
facilities, while turning a \$4.8 million asset into one worth at least
\$9.5 million.

The old property contained 20 acres of level, rectangular ground
surrounded by retail development. The State Patrol used it for light
industrial and storage purposes. The agency equipped and serviced
vehicles for the entire patrol fleet there, and stored the local fleet
of cars. It also housed the property management and engineering
divisions, and the supply division in a third building, for uniforms,
guns, and more. The facility included four buildings containing 54,000
square feet. Buildings ranged in age from 20 to 45 years.

Officials believe the property was worth more than its appraised value
of about \$4.8 million. They wanted to consider methods to recoup its
full value. They considered an innovative idea of exchanging that
valuable piece of property for other property in a light industrial park
with new facilities that matched the State Patrol needs.

The stated goals of the project were the following:

-   Replace existing outmoded light industrial facilities

-   Relocate facilities to a site with appropriate zoning and growth
    potential

-   Accomplish relocation and construction without requesting capital
    funding from legislature

The State Patrol approached the private development community to assess
interest in its property. Private developers agreed that the land was
worth millions more than the valuation. The agency then decided to
market the land "not on its appraised value but on its potential value,"
one official said.

Initially the state blocked the plan because an exchange of old land for
new land and buildings had never before occurred. However, after some
persuasion by the State Patrol, key legislators supported the proposal
as long at the State Patrol guaranteed that it was "foolproof."

The State Patrol issued a basic request for qualifications targeting
large national developers as well as small local firms. The RFQ stated
the desire of the Patrol to exchange its current property for new land
and new buildings. The RFQ included some very simple drawings of the new
facilities the State Patrol wanted. An official said that private
developers estimated it would cost between \$4 and \$5 million to build
the new facilities, not including the cost of the land. In total, a new
generic site of 20 acres plus those new facilities would likely cost
about \$10 million.

In its next step, the state blanketed the development industry with
information about the project including the basic building
specifications. The state received 20 responses of interest. The state
then issued a formal RFP, which generated four final proposals from
large developers.

[Proposal:]{.underline}

One proposal maintained that the state would owe the developer \$1 to
\$2 million at the end of the project, and two others estimated other
amounts that the state would owe.

However, one proposal maintained that the developer would build as
specified in an exact exchange of the new \$10 million project for the
currently appraised \$4.8 million piece of land. The developer would
secure national retailers to lease space on the old property. By
securing those lease obligations, the property is worth significantly
more.

An official with the State Patrol said that because the agency had done
its homework, it knew the proposal would be appealing to developers
interested in land near large shopping areas who wanted a long-term
growth project, not a short-term gain project.

"Be a strategist, do the economic analysis," the official said. "We were
studying the *Wall Street Journal*, looking at the big box retailers'
plans. We knew (one) had planned expansion for a two-year period, so
that was our window to interest them."

The State Patrol traded their old property for a new, turnkey property
worth more than \$9 million. The State Patrol created the design
specifications, but the developer did all the other leg work for the new
property.

At the outset, the plan was for the developer to buy the land, build the
buildings, and then move the State Patrol to the new location. However,
before the new facility was completed, the developer needed possession
of the old site because the retailers who wanted to be located on the
land needed to begin construction immediately.

While the State Patrol needed to use the space, an official said it was
important that the agency also understood that the retailers needed
access to the site immediately in order for the entire project to
succeed.

"We relinquished a little bit of our position -- we agreed to let the
developer move us to a temporary site, while we left our fleet on a
portion of the old space, giving them 90% of the old site. The developer
paid for the move and the temporary space. It was inconvenient for us,
but worth it," the official explained. "Anyone considering a project
like this must be clear -- you are going to compromise. You must partner
with the developer. You're not in the developer's pocket, and you must
protect the interests of the state, but you must make the developer
successful, too. It's a big challenge."

In the Department of General Administration, the Real Estate Services
division handled the land issues and the Engineering and Architecture
division led design issues.

Attorneys with the state Attorney General's office were instrumental in
helping to negotiate the complicated contract, including a commitment
from the developer that no matter what happened going forward to the
developer, the project would be completed as specified.

The state legislature was also involved, in addition to its initial
approval for the State Patrol to pursue this unusual land swap. The
legislature needed to change some laws in order to allow this to occur,
and re-occur in the future. That took time and planning, as well as
allies in the legislature, according to one official.

The State Patrol requested several changes during construction, but any
time a request added an expense, the Patrol worked with the developer to
find cost savings elsewhere. The building process took nine months.

An official said he "didn't see any losses in this project," but he did
acknowledge that the state faced some risk. For example, the state and
the developer each did numerous property surveys and environmental tests
during process. They each approved to trade the sites "as is," so that
if an environmental issue or some other problem arose during
construction, it would be the responsibility of the new owner. The state
minimized its risk by involving an engineer in multiple tests. But,
"there is some risk you must accept along the way."

While the state must minimize risk, it's important to make sure the
developer has equal risk. "Then both will work toward a solution," the
official said. "That's the key."

[Recommendations:\
]{.underline}According to an official with the State Patrol, some of the
success of the project is due to the long tenure of many key players in
the deal. Having the same team in the real estate and engineering
divisions and support from the top of General Administration as well as
the State Patrol was very helpful.

"Our previous chief was behind this project 100%. She said if it fails,
we'll be okay, we'll just dust you off," the official said. "She was
willing to take a chance. You must have support from above...and you
must be willing to step outside the comfort zone."

Management support is critical, as is political support. The official
recommended that others considering such projects must do extensive
research and assess whether any laws may be obstacles and therefore need
to be changed. The agency will need to have a good team of lawyers who
understand the risks and want to solve problems.

While the project did require a lot of work, a State Patrol official
said it was never any staff person's full-time job to shepherd this
through.

One lesson learned, according to the State Patrol, is that it was
problematic to ask a developer to obtain new property in the first phase
of this project. Instead, the agency recommends securing property first,
then soliciting and selecting a developer.

Other agencies or states may have similarly valuable property that might
be appropriate for a land swap, according to several officials in
Washington. University systems are often given land that they cannot use
properly, but may be ripe for private sector development.

"Sometimes the government sector can't do anything with (a property)
that will be financially sound," one official said. "Developers can do
revenue-generating projects, and give a property more value.

An official in Washington said state budget shortfalls make this type of
project even more appealing. As states are struggling, they are looking
for creative ways to fund projects and save money.

The State Patrol official said somewhat jokingly about the project, "I
don't find it very innovative, only in as much as the \$5 million in
value we generated for the state." The Power Point presentation about
the project is titled, "Value Added Property Exchange, or How to Turn
\$5 Million into \$10 Million."

"I think you'd find throughout the U.S. that various state governments
own property that have the same thing happening around it as the (State
Patrol) property," said another Washington official. "I would hazard a
guess that there's a lot of similar property out there."

C. RELEVANT WEB SITES

Arizona:

Arizona Department of Administration (ADOA):
[**http://www.adoa.state.az.us/**](http://www.adoa.state.az.us/)

ADOA General Services Division: (no web site available)

Washington:

Washington State Department of General Administration (GA):
[**http://www.ga.wa.gov/**](http://www.ga.wa.gov/)

Real Estate Services division of the GA:
[**http://www.ga.wa.gov/DRES/index.html**](http://www.ga.wa.gov/DRES/index.html)

Washington State Patrol:
[**http://www.wa.gov/wsp/wsphome.htm**](http://www.wa.gov/wsp/wsphome.htm)

Management Services Bureau:
[**http://www.wa.gov/wsp/about/msbhome.htm#prop**](http://www.wa.gov/wsp/about/msbhome.htm#prop)

D. CONTACTS

Arizona:

Robert Teel, Director, General Services Division of the Arizona
Department of Administration

602/542-1952; <Robert.Teel@AD.STATE.AZ.US>

Washington:

Mark Lahaie, Manager, Real Estate Services division of the Department of
General Administration.

360/902-7386; <mlahaie@ga.wa.gov>

Tom Neff, Washington State Patrol

360/596-6001; <tneff@wsp.wa.gov>

Appendix 6: Office of Real Property Publication Survey