# Presentation: 739016

## Executive Order 13327 Compliance and MARS Training:Agricultural Research Service Whitestone Research CorporationAugust 2, 2007

**Notes:**
My name is Jon Miller, senior analyst at Whitestone.

I’m the project manager for our project with ARS.

As a case study, this is a great example of parametric modeling for total facility cost and Executive Order 13327 compliance.

##  What is the Need?

- Executive Order 13327 requires all major Federal agencies to report what facilities they own, assess their condition, and plan for full life cycle management.
- Key metrics include:
- Deferred Maintenance
- Sustainment Requirements
- Operations Costs
- Plant Replacement Value (PRV)
- Improved ARS Planning: Linking resource requirements to the facility inventory

## Final Result

- E.O. 13327 Compliance requires estimating total facility costs for all ARS Real Property.

**Notes:**
Now the 3 elements give us a total estimate for operations, maintenance, and recap which equals $176 million annually or 5.5% of PRV.

Stated another way, this equals roughly $13 per GSFT.

## Project Overview

-     “The Facilities Division requires an independent verification, validation, and estimation of ARS real property condition reporting, recapitalization targets, and operational costs for facilities located throughout the United States. ”

- Project deliverables:
- CPAIS validation
- Site inspections
- MARS calibration
- M&R estimates
- Operations estimates
- Recapitalization estimates

**Notes:**
This project has 6 basic deliverables, focusing on data collection and cost forecasting.

CPAIS database is very similar to DOE's FIMS database.

## CPAIS Validation

- Review  and revise CPAIS database for:
-    Completeness
-    Inconsistencies
-    Extreme values
-    PRVs

**Notes:**
The fundamental driver for facility cost estimates is inventory data. 

The CPAIS is the ARS inventory database which required review and revision of key data elements. 

Significant revisions were made to PRV per building use.

## Overview of Estimation Procedure

- Define asset population from CPAIS
- Select a statistically valid sample
- On-site inventory of representative buildings at 11 sites
- Calibrate MARS life cycle model
- Generate estimates

**Notes:**
Our overall cost estimation procedure included the following 5 steps.

## Select a Statistically Valid Sample

- Sample 31% of ARS assets. Buildings, N=536.

- Statistically valid sample determined by building use, age, and size.

**Notes:**
A 20% statistically representative sample was defined from the national inventory controlling for building use and age cohort.

8 ARS sites were chosen to best fulfill the sample.

## Inventory of Representative Buildings

- Inspection Process:
- Survey team covers major disciplines: mechanical, electrical, architecture/building envelope
- Major equipment capacity and condition reviewed
- Room-by-room inspection & inventory of sample buildings
- Detailed analysis of inventory data provided by sites
- Inventory verified with drawings and master equipment lists

**Notes:**
A 4 person survey team worked with site staff to conduct the on-site inventory.

## Calibrate MARS Life Cycle Model

**Notes:**
MARS default values are replaced with actual local values whenever available.

## Calibrate MARS Life Cycle Model

- Site management provided actual staff and contract labor rates, mark ups, overhead, and unscheduled maintenance cost ratios
- Also provided utilization measures for individual assets: operating hours, security, safety & permitting requirements
- Unique components and maintenance protocols are defined where necessary

*Over 240 unique components were identified and added to the MARS component/task library. *

**Notes:**
The MARS model can be calibrated in a number of different ways.

## Calibrate MARS Life Cycle Model

*Whitestone data was used where site-provided data was not available*

**Notes:**
Whitestone data was used where site specific data was unavailable.

## Calibrate MARS Life Cycle Model

*Utilization adjustments added up to 79% to DM and sustainment costs.  *

**Notes:**
Utilization adjustments increased deferred maintenance and sustainment estimates up to 79%.

Individual buildings are rated for hours of operation, security, and safety & permitting.

Depending on the asset’s utilization, its cost are adjusted accordingly.

## Three Types of Estimates are Produced

|  |  |
| --- | --- |
| Sustainment | Preventive Maintenance & Minor Repair |
|  | Unscheduled Maintenance |
|  | Major Repair & Replacement |
|  |  |
| Recapitalization | Replacement due to Obsolescence |
|  | Change in Use Modifications |
|  | Policy-mandated Modernization |
|  | Acts of War & Nature |
|  | Restoration from Neglect |
|  | Long-lived Component Replacement |
|  |  |
| Operation | Energy |
|  | Water |
|  | Management |
|  | Custodial |
|  | Refuse |
|  | Grounds |
|  | Pest Control |
|  | Road Clearance |
|  | Security |
|  | Telecom |
|  |  |

- Whitestone cost models are explicitly aligned with Federal accounting definitions

**Notes:**
Recapitalization includes 6 types of costs.

## MARS estimates task-based deficiencies and future requirements for representative building models 
Building models represent specific asset classes and age-size cohorts
Overall estimates for buildings were made by multiplying sample costs by the SF total for cohorts in each asset class

- Building models represent specific asset classes and age-size cohorts
- Overall estimates for buildings were made by multiplying sample costs by the SF total for cohorts in each asset class

- Focus on Deferred Maintenance and Future Sustainment

**Notes:**
Once the sample building models were completed and MARS was calibrated, we turned the crank and forecasted deficiencies and sustainment estimates.

These sample estimates were then extrapolated to the population by multiplying their square foot costs by the total square footage for cohorts in each asset class.

## Focus on Deferred Maintenance and Future Sustainment

- Total DM = $317 mil, Overall Condition Index = 90 percent
- Average 5-year M&R Cost = $85 mil or 2.7 percent of PRV

**Notes:**
Overall, we estimated $223 million for deferred maintenance and $83 million for a 5-year annual average sustainment costs.

This yields an asset condition index of 93% or “adequate” and sustainment costs of 2.6% or PRV.

## Focus on Operations Costs

- Annual Operation Costs = $67 mil or 2.2 percent of PRV

**Notes:**
We also estimated costs for 10 Operations types using the new MARS Operations model. 

Total Operations costs were $55 million of 1.7% of PRV. 

## Focus on Recapitalization Costs

- Annual Recapitalization Costs = $36 mil or 1.18 percent of PRV

**Notes:**
Estimated recap costs for ARS are $38 million or 1.2% of PRV.

## Total Building Costs

- Total Building Costs = $188 mil or 6.1 percent of PRV

**Notes:**
Now the 3 elements give us a total estimate for operations, maintenance, and recap which equals $176 million annually or 5.5% of PRV.

Stated another way, this equals roughly $13 per GSFT.

## Distribution of Total Costs

**Notes:**
Compared to another federal organization, NNSA, the distribution of costs are very similar.

- Distribution of Total Costs

## Selected Structure Inventory

**Notes:**
A 20% statistically representative sample was defined from the national inventory controlling for building use and age cohort.

8 ARS sites were chosen to best fulfill the sample.

## Structure Sustainment and Recapitalization Estimates

- Average 50-year M&R Cost = $6.4 mil or 1.4 percent of PRV
- Annual Recapitalization Cost = $9.1 mil or 2.0 percent of PRV

**Notes:**
Overall, we estimated $223 million for deferred maintenance and $83 million for a 5-year annual average sustainment costs.

This yields an asset condition index of 93% or “adequate” and sustainment costs of 2.6% or PRV.

## Summary of Estimates

- Total building deferred maintenance is an estimated $317 million, with $198 million related to critical systems.
- Assuming a plant replacement value of $3.1 billion, the building condition index ratio (1 - DM / PRV) is .90, an outcome commonly classified as “fair.”
- Average annual sustainment costs are:
- 	Buildings: $85 million (5-year average), or 2.7 percent of PRV
- 	Structures: $6 million (50-year average), or 1.4 percent of PRV
- Average annual recapitalization costs are:
- 	Buildings: $36 million, or 1.2 percent of PRV
- 	Structures: $9 million, or 2.0 percent of PRV
- Average annual operating costs, excluding M&R, are:
- 	Buildings: $67 million or 2.2 percent of PRV
- 	Structures: Not estimated
- Total annual costs (not including deferred maintenance) are:
- 	Buildings: $188 million, 6.1 percent of PRV, or $14.48 per gross square foot
- 	Structures: $15 million, or 3.5 percent of PRV

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Upcoming Deliverables for FY08

- Re-evaluate and update PRVs
- Additional 10 percent (1.3 million GSFT) on-site inventory of ARS buildings at:
- 		- El Reno, OK
- 		- Albany, CA
- 		- Fargo, ND
- 		- Weslaco, TX
- 		- Boston, MA
- Update estimates with current market data (labor, materials, equipment, PRVs)

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Key Questions Going Forward

- Should ARS assess 100% of its Real Property Assets?
- Who should complete future assessments?
- How often should ARS inspect its assets?
- How and by who should the database be maintained?
- Should ARS invest in a web-based application?

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Critical Interaction with Sites

- Data input
- Validation
- Site-specific reports
- Best MARS configuration

- To answer the key questions, four topics must be addressed by the sites:

**Notes:**
In summary, we’ve identified 4 main points of interest.

## MARS Demonstration

- MARS Facility Cost Forecast System
- Version 7

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Two Questions about MARS

- Do ARS sites want full capabilities or just viewer access?
- Should MARS be installed as a client server or a web-based application?
- [Discussion]

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Whitestone Recommendations

**Should ARS assess 100% of its Real Property Assets?**
- 	Yes, if the detailed inventory and forecasts are utilized by the sites. If estimates serve only as a HQ approximation, then sampling is sufficient.
- 2)     **Who should complete future assessments?**
- 	If resources are sufficient, sites can complete assessments. For consistency, consider contractor support until 100% of the Real Property is assessed.

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Whitestone Recommendations

- 3)     **How often should ARS inspect its assets?**
**	**Most Federal agencies inspect assets on a 5-year cycle (20% of assets per year).
- 4)     **How and by who should the database be maintained?**
- 	The database should be maintained annually with major repairs and replacements submitted by the sites and entered by Whitestone.
**Should ARS invest in a web-based application?**
**	**Yes, web-based MARS meets more specifically ARS requirements.

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Virtues of Web-based MARS

- Distribution speed
- User access
- Administration simplicity
- Auto-updates of DM, Sustainment, Operations, Recapitalization, and PRVs
- CPAIS Integration

**Notes:**
In summary, we’ve identified 4 main points of interest.

## Background Slides

## Definitions of Deferred Maintenance

*MARS deferred maintenance estimates do not include preventive maintenance, minor repairs, or recapitalization projects*

*FASAB Standard Number 6: “Deferred maintenance is maintenance not performed when it should have been or was scheduled...”*
*DOE: “for the purpose of reporting deferred maintenance ...(it) is that cost required to restore a facility to its current use and as-built condition.”*
*MARS: Deferred Maintenance is “the cost of component replacement tasks not performed according to their prescribed frequency...and does not double count tasks that have missed their frequency more than once.”*

## Custodial. The custodial function cost factors represent the expense of cleaning offices, work areas, restrooms and common areas. They include cost of labor and supplies, equipment, and any necessary contract services. Trash removal costs are not included. The cost factors are based on survey data; location indexes are based on relevant prevailing labor and material rates.
Grounds. The grounds function includes any expense related to the maintenance of exterior areas, such as landscaping, snow removal, signage, sidewalks, and external parking lots. They include cost of labor and supplies, equipment, and any necessary contract services. The cost factors are model-based; location indexes are based on relevant prevailing labor and material rates. 
Management. Real property management function describes all costs associated with facility management, including: public works, contracts, material procurement, facility data, furnishings, real estate, and engineering services. The cost factors is expressed as a fixed percentage of Property Replacement Value, and derived from case study values; location indexes are based on relevant prevailing labor and material rates.
Pest Control. Pest Control expenses cover indoor and outdoor pest control programs, separate from the grounds function. The cost factors are based on a micro-model developed by Whitestone Research; location indexes are based on relevant prevailing labor and material rates.
Energy. Energy represents all expenses related to the purchase, generation, distribution, and conservation of energy and source fuels necessary to operate a building. The main energy sources considered are electricity and natural gas, expressed in kBtus and Source Energy terms. Location indexes are based on local commodity costs, prevailing labor rates, and climatic variables. 

**Grounds. **The grounds function includes any expense related to the maintenance of exterior areas, such as landscaping, snow removal, signage, sidewalks, and external parking lots. They include cost of labor and supplies, equipment, and any necessary contract services. The cost factors are model-based; location indexes are based on relevant prevailing labor and material rates.
**Management. **Real property management function describes all costs associated with facility management, including: public works, contracts, material procurement, facility data, furnishings, real estate, and engineering services. The cost factors is expressed as a fixed percentage of Property Replacement Value, and derived from case study values; location indexes are based on relevant prevailing labor and material rates.
**Pest Control. **Pest Control expenses cover indoor and outdoor pest control programs, separate from the grounds function. The cost factors are based on a micro-model developed by Whitestone Research; location indexes are based on relevant prevailing labor and material rates.
**Energy. **Energy represents all expenses related to the purchase, generation, distribution, and conservation of energy and source fuels necessary to operate a building. The main energy sources considered are electricity and natural gas, expressed in kBtus and Source Energy terms. Location indexes are based on local commodity costs, prevailing labor rates, and climatic variables.

- Operations Definitions

## Refuse. Refuse costs include all costs related to trash collection and disposal, pick-up services, fees, recycling operations and administration, composting, etc. Excludes handling and disposal of HAZMAT materials. Cost Factors are based on survey data; location indexes are based on relevant prevailing labor and material rates, and tipping fees.
Road Clearance.  All expenses related to sweeping and removing snow and ice from paved areas including sidewalks, walkways, and parking lots. Cost factors are model-based; location indexes are based on relevant prevailing labor and material rates, and climatic variables (number of snow days, average annual snowfall).
Security.  Security expenses relate to the physical security of buildings and occupants, and include personnel, operating, monitoring and maintaining security equipment, and patrol services. . The cost factors are model-based; location indexes are based on relevant prevailing labor and material rates.
Telecom Telecom expenses cover the purchase of all the services ordinarily associated with commercial activities, such as voice and data equipment and service subscriptions, maintenance. The cost factors are based on survey data; location indexes are based on relevant prevailing labor and material rates.
Water Water expenses include all costs related to providing the building with potable water, irrigation water, and sewage service. The cost factors are based on survey data; location indexes are based on relevant prevailing labor and material rates.

**Road Clearance.  **All expenses related to sweeping and removing snow and ice from paved areas including sidewalks, walkways, and parking lots. Cost factors are model-based; location indexes are based on relevant prevailing labor and material rates, and climatic variables (number of snow days, average annual snowfall).
**Security.  **Security expenses relate to the physical security of buildings and occupants, and include personnel, operating, monitoring and maintaining security equipment, and patrol services. . The cost factors are model-based; location indexes are based on relevant prevailing labor and material rates.
**Telecom **Telecom expenses cover the purchase of all the services ordinarily associated with commercial activities, such as voice and data equipment and service subscriptions, maintenance. The cost factors are based on survey data; location indexes are based on relevant prevailing labor and material rates.
**Water **Water expenses include all costs related to providing the building with potable water, irrigation water, and sewage service. The cost factors are based on survey data; location indexes are based on relevant prevailing labor and material rates.

- Operations Definitions

## Recapitalization Model

- Restoration & modernization costs are based on the economic depreciation known for individual facility types

**Notes:**
The 3rd point in what DoD calls the Iron Triangle of facility costs is recapitalization.

The source of the recap model is based off economic depreciation of buildings.

Buildings depreciate over time due to code changes or obsolescence and require capital to bring them back to full capacity.

The US Treasury did a survey in the 1980s and 1990s gathering depreciation rates.

This graphic shows the old tax depreciation rate, which is a straight line depreciating the asset to $0. However, we know that a building will still have value at the end of its life cycle so a geometric depreciation rate is more appropriate.

## Recapitalization Model

- Recapitalization costs are expressed as a percentage of asset PRV

**Notes:**
Here are some examples of building types and their associated recap rates.

##  About Whitestone Research

- Employee-owned, organized in 1993
- Economists, Operations Research Scientists, Computer Scientists
- Consulting, Publishing & Software
- Offices in Washington, DC and Santa Barbara, CA
- Small Business

## Whitestone Products

- M&R Cost Reference 12th Annual Edition
- Facility Operations Cost Reference1st Annual Edition
- North American MRO Market Data
- MARS Facility Cost Forecast System
- 	Version 7
- BrickBits.com Home Owner Cost Calculator

## Consulting Services

- Life-Cycle Cost Studies
- Facilities Operations Cost Modeling
- Index Definition and Benchmarking
- Economic Impact Analysis
- Market Research
- E.O. 13327 Compliance

##  Recent Publications & Presentations

- Lufkin, Desai, and Janke, Estimating the restoration and modernization costs of infrastructure and facilities in *Public Works Management & Policy* (July 2005)
- Jay Janke, Peter Lufkin, Facility cost models in *The Military Engineer* (September-October 2005)
- Jay Janke, Executive Order 13327: Getting to green, the unwritten requirements. MARS User Conference, June 1-2 2006, Santa Barbara
- Peter Lufkin, Bernard Mattimore, Extended service life and its implications. EFCOG Infrastructure Management Working Group Annual Meeting, October 17-19 2006, Oak Ridge

-  Recent Publications & Presentations

##  Whitestone Contacts

- Peter Lufkin
- Principal
- 509 East Montecito Street, Suite 200
- Santa Barbara, CA 93103 (805) 884-9174
- plufkin@whitestoneresearch.com
- Jay Janke
- Director of Federal Services
- 1250 24th Street NW, Suite 300
- Washington DC 20037  (202) 776-7760
- jjanke@whitestoneresearch.com

-  Whitestone Contacts

- Mike Panesis
- V.P. of Product Development
- 509 East Montecito Street, Suite 200
- Santa Barbara, CA 93103 (805) 879-9928
- mpanesis@whitestoneresearch.com
- Jon Miller
- Senior Analyst
- 509 East Montecito Street, Suite 200
- Santa Barbara, CA 93103 (805) 879-9920
- jmiller@whitestoneresearch.com