# Presentation: 261762

## Walt CooperCost Analysis Improvement Group (CAIG)Office, Secretary of Defense

- November 14, 2006

**Project Cost Estimating**

## Purpose

- To describe the Cost Analysis Improvement Group (CAIG) and its methods for developing independent cost estimates.
- Case study: Pentagon Reconstruction and Renovation.

## About the CAIG

- Established in January 1972 by Secretary Laird
- Responsibilities
- Conducts independent cost estimates of Major Defense Acquisition Programs and selected other capital projects*
- Principle advisor to Secretary of Defense on matters concerning program life-cycle costs
- Functions in addition to cost estimating
- Cost research
- Training:  Annual Department of Defense Cost Analysis Symposium
- Data and analytic resources
- Visibility and Management of O&S Costs (VAMOSC)
- CAIG Library

- *  Required by Title 10, Section 2434.

## CAIG Structure

- Staff size: 30 full-time equivalents
- About 50-55 CAIG estimates per year
- 1 to 4 analysts per estimate
- Average time commitment per cost estimate
- 6 calendar months
- 8 to 10 man-months of effort
- 4 man-months for lead
- 4 to 6 man-months for others combined
- About 7 man-years in functions other than cost estimating

## Pentagon Reconstruction and Renovation (PENREN)

- Begun in 1998
- Experienced rapid increase in costs
- Congress established a ceiling on total costs – $2 billion*
- Pentagon reconstruction after September 11 attack – highly accelerated program
- CAIG directed to develop independent cost estimates
- Examine costs of recovery and reconstruction after September 11 attack
- Determine likelihood of further cost growth that would exceed Congressional cap
- Make appropriate management recommendations

- *  All costs in FY 2001 constant dollars

## PENREN Phasing Plan

**PENREN Phasing Plan**

**Phoenix**

## Phoenix/Wedge 1 Recovery

**Phoenix/Wedge 1 Recovery**

-   2 million ft2 reconstructed
-   Peak workforce: 3,000
-   87 contractors and sub-contractors

## Estimating Approach

- Documentation – narrative description (results of contract analysis, interviews, etc.), drawings and specs
- Base estimate on parametrics (e.g., cost per men’s bathroom), factors (e.g., scaling for acceleration), concentrating on areas of greatest cost risk

## Phoenix/Wedge 1 RecoveryConclusions

- Results
- PENREN estimate: $472 million for portion of project based on drawings and specifications
- CAIG estimate: $425 million for same scope (10% less than PENREN)
- Project Manager’s estimate reasonable, with the following issues that caused cost growth from project inception
- Missing scope in work definition
- Inefficiencies in construction process
- Clearances for workers
- Relocation of Pentagon employees
- Contract perturbations

## Wedges 2 through 5

**Wedges 2 through 5**

## About Wedges 2 through 5

| Factor | Wedge 2 | Wedge 3 | Wedge 4 | Wedge 5 |
| --- | --- | --- | --- | --- |
| Occupiable space (thousands of ft2) | 934 | 735 | 719 | 519 |
| Command center space (thousands of  ft2) | 65 | 0 | 0 | 0 |
| Automated data processing space (thousands of  ft2) | 42 | 15 | 15 | 10 |

- 20,000 employees to be moved
- Removal of 332 million lbs of debris
- 115 million lbs of hazardous materials
- New building elements
- Energy-saving building elements/materials
- “Smart Walls”
- Elevators and escalators
- Thermal insulated and blast-resistant windows
- Security upgrades

## PENREN Phasing Plan

**PENREN Phasing Plan**

**Phoenix**

## Estimating Approach

- Develop detailed space models for each space/type function
- Wedge 2 core and shell drawings
- Tenant space plans
- Space type narratives
- Contracts
- Analyst judgment
- Developed cost estimate for each space/function type on square foot basis
- Direct costs
- RS Means, Inc.
- Engineering judgment
- Prevailing wage rates for trades
- Indirect costs: Standard industry mark-ups and complexity factors to obtain indirect cost

## Work Breakdown Structure

| Planning and design |
| --- |
| Construction |
| Building-wide procurements |
| Security |
| Telecommunications |
| Relocation costs |
| Emergency response costs |

## Wedge Cost Estimates

- Notes:
- 1.  “CAIG” is extrapolation from Wedge 1 actuals; “bottoms up” estimate forthcoming
- 2.  CAIG has not addressed information management and technology or acceleration in depth

**Wedge 2**

**Wedge 3**

**Wedge 4**

**Wedge 5**

## Additional Analyses

- “Top Down” look
- Used actual cost from pre-9/11 work to determine a unit cost
- Simple Excel worksheet used
- Compare to analogous building renovations
- Department of Justice
- Seven year project
- $100 million
- Naval Sea Systems Command Headquarters
- Historical building
- 1,000,000 ft2
- $192 Million

- Wedge Cost
- by Space

- Pentagon
- Factor

## Wedge Costs by Space Type 

**Wedge Costs by Space Type **

- 0.00

- 50.00

- 100.00

- 150.00

- 200.00

- 250.00

- 300.00

- 350.00

- 400.00

- 1

- 2

- 3

- 4

- 5

**Wedge**

**FY01 $M**

- Not Occupiable

- C Space

- SP Space

- O Space

**Notes:**
C Space = Command Centers
SP Space = Special Purpose Space
O Space = Office Space

## The “Pentagon Factor”

- 0

- 50

- 100

- 150

- 200

- 250

- 300

**DoJ**

**NAVSEA**

**Extrapolation **
**From Wedge 1**

**FY 2001 $/ft****2**

- Abatement of hazardous materials

- Security

- Force protection

- Basic design and construction

**The “Pentagon Factor”**

- Special purpose areas, command centers

- Walls, enhanced sprinkler systems, signs

- Remote Delivery Facility, clearances

- Hazardous materials

**Notes:**
“As built” drawings provide little useful information due to numerous mods and upgrades to the building
Removal of HAZMAT is laborious (asbestos, lead-based paints, etc)
Security upgrades (closed circuit television, perimeter access control)
Remote Delivery Facility screening of package deliveries
Security accreditation of contractors/workers
Enhanced Force Protection measures (sprinkler systems, fire retardant walls, photo-luminescent signage, new “half-corridors”)
Distinct mixture of space types (command and operation,  ADP, Conference and Training spaces)

## Growth in Wedge Cost Estimates

**Growth in Wedge Cost Estimates**

## Wedges 2 through 5Conclusions

- PENREN PMO estimates for Wedges 2 through 5 higher than CAIG estimate by about 10%
- CAIG estimate consistent with comparisons to actual costs of other major renovations in Metro DC area
- High level of contamination
- Significant force protection and security measures
- High proportion of expensive command and operations space
- Program likely to remain under Congressional cap

## Recommendations to Senior Leadership

- Support current obligational authority for Phoenix/Wedge 1 Recovery
- Propose alternative estimate in FY 2004 Budget Review to adjust current PMO estimate for Wedges 2-5
- Establish PENREN Cost Analysis Team
- Review all major changes to the Wedge 2 contract prior to implementation
- Address cost growth in Information Management and Technology and from acceleration of work

## Some “Take-aways”

- A clearly defined and described program is essential.  We require a Cost Analysis Requirement Description (CARD) before doing any estimate.
- We base estimates on thoughtful analysis of actuals.
- “You cannot cost what you cannot see.”
- Talk to program managers
- Talk to contractors
- See the equipment/project
- We consider independent cost estimating as “inherently governmental.”  No contractors, except in cases where we lack technical expertise.
- Understand contractor’s position when evaluating plans/estimates.
- Understand leadership’s position when providing recommendations.