National Academies Press: OpenBook
Suggested Citation:"TOTAL LIFE-CYCLE COST METHOD." National Research Council. 2001. Deferred Maintenance Reporting for Federal Facilities: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended. Washington, DC: The National Academies Press. doi: 10.17226/10095.
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DEFINITIONAL ISSUES AND POTENTIAL REVISIONS 25 excellent information as a basis for facilities management practices and maintenance and repair budget requests. In practice, the data are usually not provided in a time frame or format that is useful for cost-effective facilities management” (NRC, 1998). There are several reasons for this finding. Federal agencies can have hundreds or even thousands of facilities. The costs incurred in conducting condition assessment surveys will vary significantly, depending on the complexity, the depth and breath, and the level of the inspection. For example, an inspection could be a relatively simple walk through of a facility to identify deficiencies that are easily visible. Or an inspection could be a detailed diagnostic inspection by specialized personnel who look at the performance of mechanical, electrical and other internal systems. Information obtained from Federal Facilities Council (FFC) sponsor agencies participating in this study indicates that the costs of condition assessments can range from 3¢ to 35¢ or more per square foot, depending on the type and location of the facility, type of inspection, and qualifications of the inspectors, among other factors. Thus, assessing the condition of a 200,000 square foot facility could range from $6,000 to $70,000 or more, depending on building type (warehouse versus research facility), system complexity, location, level of inspection, and other factors. Multiplied over hundreds or thousands of buildings, the costs can quickly outstrip agency budgets for maintenance and repair. Thus, “tradeoffs occur between the amount of data collected, the frequency at which it is collected, the quality of the data, and the cost of the entire process, including data entry and storage” (Sanford and McNeil, 1997). In practice, therefore, when federal agencies conduct condition assessment surveys for an entire inventory of facilities it is typically done on a cycle of every 3 to 5 years or longer. Federal agencies may also conduct condition assessment surveys for specific facilities in specific circumstances, for example, when looking to acquire or dispose of a facility, change tenants, or take on a new program or mission. TOTAL LIFE-CYCLE COST METHOD The second method specifically identified by FASAB Standard Number 6, as amended, to calculate deferred maintenance is total life-cycle cost. This method is defined by the standard as an acquisition or procurement technique that considers operating, maintenance, and other costs in addition to the acquisition cost of assets (FASAB, 1996). Standard Number 6, as amended, states that since life-cycle costing results in a forecast of maintenance expense, these forecasts may serve as a basis against which to compare actual maintenance expenses and estimate deferred maintenance (FASAB, 1996). Required data elements for this methodology include the original date of maintenance forecast, the dollar amount of maintenance defined by the professionals who designed, built, or manage property, plant, and equipment as required maintenance for the reporting period, and the dollar amount of maintenance activity performed, among others. Life-cycle costing for facilities is most commonly used early in the acquisition process to facilitate decision making about the types of materials, systems, and other components to be incorporated and to estimate total operation and maintenance costs over the life cycle of the building. Given the age of many federal facilities, it is unlikely that agencies could identify the original date of maintenance forecast (if one was ever done) or any changes to the forecast. Other data required by the FASAB standard, in particular the amount of maintenance performed, would

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In 1996 the Federal Accounting Standards Advisory Board (FASAB) 1 enacted Standard Number 6, Accounting for Property, Plant, and Equipment (PP&E), the first government-wide initiative requiring federal agencies to report dollar amounts of deferred maintenance annually. The FASAB has identified four overall objectives in federal financial reporting: budgetary integrity, operating performance, stewardship, and systems and control. FASAB Standard Number 6, as amended, focuses on operating performance and stewardship. The FFC Standing Committee on Operations and Maintenance has prepared this report to identify potential issues that should be considered in any future amendments to the standard and to suggest approaches for resolving them. The committee's intent is to assist the CFO Council, federal agencies, the FASAB, and others as they consider how best to meet the objectives of federal financial reporting for facilities.

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