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Strategies to Renew Federal Facilities (2023)

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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
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Summary

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

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

STATEMENT OF TASK

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

DEFINING RENEWAL

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

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

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

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

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

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

ESTABLISHING A FOUNDATION

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

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

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

FACTORS IN DEVELOPING STRATEGIES FOR FEDERAL FACILITIES RENEWAL

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

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

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

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

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

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

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

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

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

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

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

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

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

  • Engaging appropriate federal and, potentially, private-sector stakeholders;
  • Targeting appropriate communication channels; and
  • Being clear, complete, comprehensive, appropriately nuanced, fact-based, and rich with quality data.
Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

RECOMMENDATIONS

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

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

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

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

RECOMMENDATION 1: Implement a Federal Facility Asset Management System

The Office of Management and Budget (OMB), in concert with the Federal Real Property Council, should update OMB Circulars A-11 and A-123 to improve guidance for implementing facility asset management systems by

  • Requiring federal agencies to use a comprehensive and principle-based facility asset management system, as defined by International Organization for Standardization 55000—Asset Management System standards, to implement federal facility renewal strategies;
  • Clarifying how enterprise risk management and internal controls support implementation of federal facility renewal strategies by improving and clarifying policies contained in OMB Circulars A-11 and A-123;
  • Clarifying agency senior real property officer’s fiduciary responsibilities to ensure and assure that the agency is maintaining its facility portfolio efficiently and effectively, and that achievement of this responsibility is reported as part of the agency’s OMB Circular A-136—Financial Reporting Requirements;
  • Detailing how whole asset life-cycle costs, whole asset portfolios, and whole benefit analysis support resource-and-investment decision making; and
  • Updating OMB Circular A-11, Section 83 (Object Classification) to remove fragmentation and many-to-many relationships that make it exceedingly difficult to generate and audit integrated real property performance–budget and management balance sheets.

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

RECOMMENDATION 2: Implement a Real Property Capital Plan

The Office of Management and Budget (OMB) should clarify its requirements for agencies’ annual real property capital plans as detailed in OMB Circular A-11’s Supplement—Capital Programming Guide and OMB Memorandum M-20-03, “Implementation of Agency-wide Real Property Capital Planning.” Specific requirements needing clarification include

  • Ensuring the requirement for agencies to develop and publish a single, fully integrated real property capital plan as a component of the agency capital plan, as defined in the Capital Programming Guide;
Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
  • Verifying the relationship of real property capital plans in informing annual budget and investment decision making, including the successful inclusion of urgent and compelling facility renewal needs; and
  • Publishing the role of the agency’s real property capital plan by documenting and communicating the agency’s strategy for reconciling agency objectives, budgets, and real property programs.

Furthermore, agency senior real property officials should implement guidance in OMB M-20-03 for advancing the central role of their agency’s real property capital plan, establishing a strategy for integrating and reconciling requirements, objectives, budget, and real property program execution.

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

RECOMMENDATION 3: Update the National Strategy for the Efficient Use of Real Property

The Office of Management and Budget (OMB) should clarify how the National Strategy for Efficient Use of Real Property and OMB Memorandum M-20-10 (Issuance of an Addendum to the National Strategy for the Efficient Use of Real Property) are used to guide their agency’s asset management system implemented through real property capital plans. Specific requirements include the following:

  • Defining how agencies are to use the National Strategy to establish priorities and objectives for the efficient use of real property, to include addressing the Government Accountability Office’s real property high-risk issues; and
  • Establishing requirements that link performance reporting of budget execution for the real property capital plan to National Strategy objectives, as reviewed annually by the agency in the context of agency strategic plan reporting, such as through application of the Operational Readiness Principle.

Furthermore, chief management officers and chief budget officers should ensure they coordinate their agency’s response to OMB M-20-10 (Issuance of an Addendum to the National Strategy for the Efficient Use of Real Property) with their agency’s response to OMB Memorandum M-20-03 (Implementation of Agency-wide Real Property Capital Planning).

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×

RECOMMENDATION 4: Improve Federal Facility Models, Data, and Measures

The Office of Management and Budget (OMB) should clarify guidance requiring agency senior real property officials to improve cost estimates of renewal requirements. Currently, there is no broadly accepted approach to estimating renewal costs, which diminishes the credibility of renewal decision making. After considering two of the methods available, the committee recommends the following:

  • Senior real property officials should adopt an economic depreciation approach for estimating renewal costs, tailorable to each agency’s facility portfolio. As a starting point, the model could be simplified to a set of cost factors by facility type, analogous to the Department of Defense Facility Sustainment Model.
  • Agencies should include existing dated depreciation rates and service lives in the economic depreciation approach review by using a schedule established for the revision of depreciation rate and service life data used in depreciation models, which is currently provided by the Department of Commerce’s Bureau of Economic Analysis.

Furthermore, the General Services Administration (GSA), in coordination with the Federal Real Property Council and under the direction of OMB, should create an independent database of component inventories for federal facilities, beginning with the extensive data collected for the Builder system, and make it available to qualified users and accessible by popular capital planning and facility management systems. The senior real property officials of all agencies would submit information to GSA for compiling, as directed by executive requirement.

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

RECOMMENDATION 5: Implement Federal Facility Renewal Budgeting Strategies

Through implementation of facility asset management systems detailed in preceding recommendations, the Office of Management and Budget can ensure optimal use of federal facilities by having federal agencies guide budget development of federal facility renewal strategies by

  • Creating working capital funds or revolving funds to aggregate funding for capital investment into consolidated, agency-wide budget accounts, which could help smooth multiyear life-cycle spending and avoid large, disruptive year-to-year funding spikes;
Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
  • Installing user-pays models for all federal facilities that fund working capital required to sustainably operate, maintain, repair, and renew federal facilities;
  • Allowing the General Services Administration to spend all the revenue collected in the Federal Buildings Fund for repairing, renewing, or replacing facilities managed by the Public Buildings Service;
  • Encouraging agencies to identify noninherently governmental facilities and related services that are mirrored by a broad-based, active private market to be candidates for privatization, outsourcing, or public–private partnerships;
  • Using the expedited disposal authorities created by the Federal Asset Sales and Transfer Act (FASTA), or seeking additional disposal authorities for properties not covered by FASTA, to dispose of unneeded and underutilized properties; and
  • Using operating leases as an alternative to ownership when budget scoring rules show that the cost of owning is unlikely in the near-term budget outlook.

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

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

Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2023. Strategies to Renew Federal Facilities. Washington, DC: The National Academies Press. doi: 10.17226/26806.
×
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The United States real property portfolio is critical infrastructure that provides places and means for the federal government to operate and generate the products, services, security, and assurances that contribute to national prosperity and values. This report identifies broad-based, practical, and compelling strategies for securing continuing investment in the renewal of federal real properties and portfolios. Strategies to Renew Federal Facilities focuses on the how- not the what - for adapting, repurposing, restoring, recapitalizing, and replacing real property assets.

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