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The Operating Context for Federal Facility Renewal Strategies

INTRODUCTION

The nation’s federal real property portfolio is critical infrastructure¹ that provides places and means for the federal government to operate and generate the products, services, security, and assurances that contribute to the nation’s prosperity and values. This chapter identifies and clarifies the foundation for, limitations on, and opportunities to develop and implement federal facility renewal strategies designed to better achieve these objectives. It finds that federal facility renewal strategies are best implemented through asset management principles and frameworks, such as those detailed in the International Organization for Standardization (ISO) 55000 series on asset management. This is because these standards use the lens of agency performance and not asset life-cycle management as the basis for resource-and-investment decision making. When used, ISO 55000 asset

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¹ For the purposes of this report, the nation’s federal real property infrastructure includes public lands, buildings, and structures. A building is defined as a roofed and floored facility enclosed by exterior walls and consisting of one or more levels, which is suitable for single or multiple functions and protects human beings and their properties from direct harsh effects of weather, such as rain, wind, and sun. Structures are other real property assets not defined as buildings, including open storage facilities, roads, runways and taxiways, bridges, parking surfaces, and utility systems. This infrastructure is referred to in this report as federal facilities.

management standards provide a basis for defining fiduciary responsibility for facility management. Use of this standard also establishes a means to systematically improve agency mission achievement through more effective risk-based resource-and-investment decision making in support of federal facility portfolio management. In this report, this objective is synonymous with strategies for renewing federal facilities.

THE BASIS FOR FEDERAL FACILITY RENEWAL STRATEGIES

Federal facility renewal strategies are founded on the need to enable an efficient and effective federal government and are dedicated to making better resource-and-investment decisions regarding federal facilities to optimally enable federal government operations. This invites a new perspective, looking at federal facilities as an enabling asset and not as an overhead expense. Simply, the basis for federal facility renewal strategies is to generate value for the American people.

At the most basic level, creation of federal renewal strategies is an agency fiduciary responsibility carried out through facility asset management activity. In an ISO 55000 context, asset management is a disciplined approach that “does not focus on the asset itself, but on the value the asset can provide to the organization” (ISO 2014a, § 2.4.2a). This report applies this lens to focus on the role of federal facility renewal strategies in supporting federal agency operations today and into the future. The committee views federal facility renewal strategies as a management imperative, and it is, therefore, no surprise that their development and use are required by public laws and statutes.

FOUNDATIONS FOR FEDERAL FACILITY RENEWAL STRATEGIES

The modern beginnings of real property² management as a coordinated activity can be traced to the Federal Property and Administrative Services Act of 1949. The dawn of federal facility asset management begins with a report by the National Council on Public Works Improvement (1988), titled Fragile Foundations—A Report on America’s Public Works. This report put into context the need for a national strategy of systematic investments to support America’s productivity and quality of life.

On a parallel track in the late 1980s, ISO first published ISO 9001—Quality Management Systems (ISO 2015a). ISO based this standard on a wide range of efforts with a common interest in promoting quality in products and services.

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² The term federal real property means public lands and improvements to public lands. A more comprehensive definition can be found in 26 CFR § 1.856-10, Definition of real property, https://www.law.cornell.edu/cfr/text/26/1.856-10. Accessed December 9, 2022.

Some references used to develop early versions of this standard go back to the 1950s. In the United States, similar forces were being mobilized to advance asset management capabilities, specifically the Chief Financial Officers Act of 1990. With this act, Congress commissioned a body of requirements mandating more effective management practices. In the ensuing years, additional laws, executive orders, Government Accountability Office (GAO) reports, and National Research Council reports,³ advanced the intellectual development of asset management. These sources, along with many others, collectively supported the emergence of facility asset management. Notable international and national events occurring along this timeline to present day are shown in Figure 2-1.

The sources identified in Figure 2-1 demonstrate that across the world, asset-dependent organizations were pursuing similar advancements for generally the same reasons. For example, circumstances in the United Kingdom made facility asset management critically important. Around 1994, the United Kingdom was privatizing large portions of its public infrastructure to include rail, water, and wastewater. In the rail transportation sector, supporting contracts were 10 years in length, whereby a contracted entity was given authority to operate a rail line to generate revenue, but with an obligation to maintain the physical assets owned by the government. As activities played out, this strategy had a major flaw. The contracted operator’s commitment to the long-term upkeep of the physical assets was not the same as the government’s perpetual interests. As a result, the condition of the physical assets measurably decreased.

In response to this flaw, and to those of similar examples in other sectors, the British Standards Institute published Publicly Available Specification (PAS) 55—Specification for the Optimized Management of Physical Assets, first in 2004. The government’s need to confer effective asset management requirements in contracts motivated this publication. For similar reasons, clarity of this objective was emerging in many physical asset–intensive industries across the world, with Australia and New Zealand being recognized leaders (e.g., the Financial Management Act in Australia in 1994). In parallel, ISO continued to advance development of standards on management systems based on ISO 9001—Quality Management Systems (ISO 2015a), the most prominent being ISO 14001—Environmental Management Systems (ISO 2015b). Today these ISO management system standards are part of a growing family of management system standards implemented in accordance with ISO/IEC (International Electrotechnical Commission) Directives, Parts 1 and 2.

Many more sources and stories relate to how facility asset management as a disciplined approach has matured. All have similar origins and motivations: how to make effective risk-based resource-and-investment decisions in order to manage assets for the good of the organization and its stakeholders. Success in using

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³ Prior to July 1, 2015, reports of the National Academies of Sciences, Engineering, and Medicine were authored by the National Research Council.

PAS-55 in the United Kingdom generated demand for an international standard that led to the ISO 55000 series for asset management standards. The ISO Technical Committee (ISO/TC) 251—Asset Management manages these standards. The United States is a member of this committee authorized through the American National Standards Institute (ANSI) and sponsored by the American Society for Testing and Materials (ASTM) of the U.S. Technical Advisory Group (TAG) on Asset Management. Today, ISO/TC 251 leads international efforts advancing asset management system standards that underpin best practices for facility asset management around the globe.⁴ This committee views the ISO 55000 asset management series as a foundation for improving an organization’s facility asset management capabilities and therefore a solid foundation for developing and implementing federal facility renewal strategies. This committee also emphasizes experiences gained from the UK railway example above and its causal relationship to generating ISO 55000 as a good reason to consider using these standards to support U.S. government federal facility asset management.

OVERSIGHT OF THE FEDERAL REAL PROPERTY PORTFOLIO BY THE GOVERNMENT ACCOUNTABILITY OFFICE

Another foundational source contributing to the advancement of facility asset management is GAO and its many reports on or related to this subject. GAO is an independent, nonpartisan agency that works for Congress to examine how the federal government spends taxpayer dollars. GAO reports provide Congress and federal agencies with objective, reliable information to help the federal government save money and work more efficiently. The following sections highlight several foundational GAO reports influential to the committee’s efforts to improve federal facility renewal strategies.

GAO’s High-Risk Report Series

GAO commissioned its High-Risk report series in 1990.⁵ This series has evolved into a biennial report released about the time of the start of each Congress. Its purpose is “to identify and help resolve serious weaknesses in areas that involve substantial requirements and provide critical services to the public.”⁶ Facility real property was first elevated as a high-risk area for the Department of Defense in 1997 (GAO 1997), and the whole federal government in 2003 (GAO 2003) and has remained there ever since. The most recent GAO High-Risk report,

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⁴ The ISO 55000 series is not limited to facility asset management. It covers both tangible and intangible assets. More information is available at https://committee.iso.org/home/tc251.

⁵ See Government Accountability Office, “High-Risk List,” https://www.gao.gov/highrisk/overview. Accessed December 9, 2022.

⁶ Government Accountability Office, “High-Risk List.”

Managing Federal Real Property (GAO 2019g), makes recommendations on 63 outstanding issues. Many of these are specific to facility asset management objectives. Although GAO does not identify facility asset management as a focus area, the committee views all its recommendations related to making better resource-and-investment decisions as a facility asset management recommendation. Though some progress has been made on one or more criteria since 2019, and ratings for a segment within facility asset management sufficiently improved so that the segment was removed, facility asset management remains on the 2021 GAO High-Risk report and the committee continues to be supportive of GAO’s high-risk recommendations in this area (GAO 2021).

GAO Report on Facility Asset Management

In GAO-19-57, Federal Real Property Asset Management—Agencies Could Benefit from Additional Information on Leading Practices, GAO identified an asset management framework based on asset management literature, expert interviews, and ISO 55000 standards (GAO 2018f). This GAO report was influential to the committee’s recommendations in the current report. The GAO report also includes key characteristics of an effective asset management framework (see Figure 2-2) that were formative in developing recommendations made in this report.

Also very influential was the report’s conclusion:

GAO’s single recommendation in the report is as follows:

GAO Report on Reliable Cost Estimates

All federal facility renewal strategies require reliable cost estimates, and GAO has advanced work value by adding methodologies in this area for years. Its most recent contribution is GAO-20-195G, Costing Estimating and Assessment Guide—Best Practices for Developing and Managing Program Costs. This guide states that developing reliable cost estimates is crucial for realistic program planning, budgeting, and management. GAO defines a cost estimate as the summation of individual cost elements using established methods and valid data to estimate the future costs of a program (GAO 2020a).

GAO-20-195G also describes cost-estimating processes and warns agencies about the risk of experiencing cost overruns, missed deadlines, and performance shortfalls if they do not use its leading practices (GAO 2020a). The committee agrees that development and use of cost-estimating guidelines, such as those detailed in the report (see Figure 2-3), are critical to any agency’s facility asset management system, with one caveat: GAO-20-195G provides guidance related to developing reliable cost estimates for programs—not for facility asset portfolios. As detailed in Chapter 3, there is a distinction between the two. This point also highlights a bias the committee found in some OMB guidance that does not fully address facility asset management idiosyncrasies. Efficient facility asset management that improves overall facility portfolio performance requires strategies that integrate and coordinate many programs. These facility asset management strategy improvements must address both optimization of programs supporting facility operations and optimization of the value generated by facility portfolios. This is a subtle yet significant issue that agencies need to consider when applying guidance in GAO-20-195G to develop federal facility renewal strategies.

GAO Report on Analysis of Alternatives

Another area important for developing federal facility renewal strategies is the analysis of alternatives. A good example of how to approach this topic is GAO-16-853, Joint Intelligence Analysis Complex: DOD Partially Used Best Practices for Analyzing Alternatives and Should Do So for Future Military Construction Decisions (GAO 2016g). This report evaluated the decision process to move mission capabilities from one location to another. GAO has also identified 22 best practices on how to analyze alternatives (GAO 2017e). The GAO grouped their best practices into four characteristics, shown in Table 2-1. This committee found that these characteristics and criteria are an excellent starting point for an analysis of alternatives for developing federal facility renewal strategies.

TABLE 2-1 Best Practices for Analysis of Alternatives (AOA)

SOURCE: Government Accountability Office, 2016, Joint Intelligence Analysis Complex: DOD Partially Used Best Practices for Analyzing Alternatives and Should Do So for Future Construction Decisions, GAO-16-853, Washington, DC, www.gao.gov/assets/690/689599.pdf.

GAO Report on Internal Management Controls

The last topic the committee chose to highlight is a GAO report on internal controls. OMB establishes internal control requirements in Circular A-123—Management Responsibility for Enterprise Risk Management and Internal Control, as implemented by OMB Memorandum M-16-17. This OMB source invokes the use of GAO-14-704G, Standards for Internal Control in Federal Government (also known as GAO’s Green Book), as an “integrated governance structure” to “engage all agency management, beyond the traditional ownership of OMB Circular No. A-123 by the chief financial officer community” (OMB 2016). This was a significant expansion of OMB requirements relevant to the development and implementation of federal facility renewal strategies. OMB Circular A-123 establishes requirements for enterprise risk management, whereas GAO-14-704G focuses on guiding and structuring supporting internal controls, as highlighted in Figure 2-4.

The balance of GAO-14-704G provides excellent guidance and principles on internal controls, but neither this source nor OMB Circular A-123 provides explicit instructions on how to implement them as part of a management system. The committee agrees with materials contained in these sources and goes one step further, as detailed in the report’s first recommendation, recommending the use of ISO 55000 asset management standards to fill this gap in support of the development and implementation of federal facility renewal strategies.

Additional GAO Reports Related to Facility Asset Management

Appendix D of this report summarizes other GAO reports related to federal facility asset management issues and decision-making needs. These reports cover specific topics, including policy and process, strategies and plans, competency and training, and data and technologies. The committee considers the findings in the referenced GAO reports important to improving an agency’s facility asset management system. These reports go beyond symptomatic issues to identify root causes that limit an agency’s facility asset management system, thus generating more effective and impactful federal facility renewal strategies. Each report listed in the appendix provides insights to all agencies working to improve their facility asset management system. To leverage these insights, it is important for an agency to evaluate GAO’s points and recommendations in the context of its facility asset management system, instead of discounting them based on perceived irrelevance.

THE OPERATING CONTEXT FOR FEDERAL FACILITY RENEWAL STRATEGIES

The preceding sections introduced the basis of and foundation for federal facility renewal strategies and established criteria and parameters for their operating context. This last section details prominent OMB policies used to establish the operating context for federal facility renewal strategies. This is a complex topic that could take volumes to explain. Below is a synopsis of a review, which is presented fully in Appendix E, intended to inform the reader of the needs and requirements for implementing federal facility renewal strategies.

The operating context for federal facility renewal strategies can be summarized as the governing body of laws, statutes, regulations, and executive orders that establish the policy used to generate agency strategies for facility asset management systems, which are communicated and managed through the agency’s real property capital plan, focusing on the following four areas:

• Federal facility asset management authorities that set the foundation for developing and implementing federal facility renewal strategies,

• The current national strategy for federal facility asset management systems used to develop and implement federal facility renewal strategies,
• OMB policies as they relate to federal facility asset management and OMB’s role in advancing federal facility renewal strategies, and
• The relationship between federal facility renewal strategies and an agency’s real property capital plan.

A synopsis of each follows.

Federal Facility Asset Management Authorities

Federal asset management authorities are conferred through statutes, regulations, orders, and policy. There are too many to enumerate, and they all impact agencies’ implementation of federal facility renewal strategies. Applying these authorities is made more complex by the fact that different agencies have different facility asset management authorities. Despite these differences, all generally agree on achieving the following objectives:

• Deliver and manage facilities necessary to achieve agency missions,
• Manage supporting resources in an efficient and effective manner,
• Comply with federal laws and regulations and the agency’s priorities and values, and
• Use facilities to generate value for the nation and the American people.

The following three principal OMB policy areas are used to implement these authorities:

• OMB Circular A-11, Part 6 (Federal Performance Framework for Improving Program and Service Delivery), is founded on the Government Performance and Results Act of 1993. This part sets requirements and a rubric for establishing and reporting performance measures linked to an agency’s strategic plan and budget that are applicable to the implementation of federal facility renewal strategies. Often these requirements are implemented through an agency’s policy for planning, programming, budgeting, and execution.
• OMB Circular A-11, Supplement—Capital Programming Guide provides guidance governing how agencies are to plan for and manage capital assets, including their real property portfolios. Guidance is organized into three phases: planning and budget, acquisition, and management-in-use phases. Compliance with all is essential to implementing federal facility renewal strategies.

• OMB Circular A-123—Management’s Responsibility for Enterprise Risk Management and Internal Control establishes requirements and provides guidance on how to implement effective risk management and internal controls governing the implementation of federal facility renewal strategies.

These OMB policies set the operating context for implementing federal facility renewal strategies, and individual agencies are expected to apply them to establish facility asset management systems. In turn, the facility asset management system is used to generate federal facility renewal strategies that are to be communicated and managed through the agency’s real property capital plan as part of a continual improvement process.

National Strategy for the Efficient Use of Real Property

OMB commissioned the beginnings of a national strategy for federal facility asset management in OMB Memorandum M-12-12, “Promoting Efficient Spending to Support Agency Operations,” also known as the “Freeze the Footprint” policy. This was later updated in OMB Management Procedures Memorandum 2015-01, known as the “Reduce the Footprint” policy, and subsequently with the release of the “National Strategy for the Efficient Use of Real Property” (National Strategy) (Executive Office of the President 2015). Most recently this strategy was renewed and updated in OMB M-20-10, “Issuance of an Addendum to the National Strategy for the Efficient Use of Real Property.”

In its present form, ownership of the National Strategy has been assigned to the Federal Real Property Council (FRPC), acting under OMB direction in accordance with authorities established by the Federal Property Reform Act of 2016. This act codified the FRPC, which was first established under Executive Order 13327, “Federal Real Property Asset Management.” OMB M-20-10 takes an honest look at the performance of the National Strategy since its inception and establishes an ambitious “Interim National Strategy Framework” supporting its continuance. This framework guides and seeks to:

• Perform a comprehensive assessment of current and future mission capability gaps in the portfolio and the capital required to eliminate them;
• Establish a common, government-wide business environment where agencies adopt common business processes and standards and share IT [information technology] and other tools and capabilities across government to promote better management practices and eliminate redundancy and prevent needless expenditure of resources; and
• Identify legislative reforms that provide agency leadership with the authority needed to prioritize mission support and cost efficiency (OMB 2020a, p. 7).

OMB M-20-10 goes on to establish expectations that it will take some time to develop a complete national policy statement. It also states OMB’s intention to consider leading real property management practices from the private sector, state and local governments, and other national governments to develop this policy. What is made clear in this memorandum is that OMB, working through the FRPC, intends to make a serious push to advance this National Strategy over the next cycle of development (OMB 2020a).

Review of OMB Policy Supportive of Federal Facility Renewal Strategies

In order to identify opportunities to improve value generated by federal facility renewal strategies, OMB policy is reviewed in detail in Appendix E. A synopsis of this review is as follows:

• OMB Circular A-11, Part 6 (Federal Performance Framework for Improving Program and Service Delivery).⁷ This part provides an excellent overarching performance management structure focused on reporting achievement of an agency’s strategic plan objectives. However, it failed to make clear how this structure directly linked to budget development and how other plans defined in OMB Circular A-11 are to be integrated into the performance framework.
• OMB Circular A-11 Supplement—Capital Programming Guide (Guide). Criticism of this guide is focused on two specific issues:
  • — Major system and IT asset acquisition bias. The Guide is heavily biased toward these two asset types to the exclusion of facility assets, a bias demonstrated by its expansive attention given to supporting major system and IT acquisition project and program management activities. Acquisition of these types of assets is less complex and is governed by regulations measurably different from those that govern facility acquisitions. As a result, the Guide fails to address many idiosyncrasies related to facility management, such as master planning, nuanced applications of Circular A-94 (OMB 1992) (e.g., deciding between cost-benefit analysis and cost-effectiveness analysis, and leased-versus-owned investment decisions), and use of investment boards versus integrated project teams to make facility acquisition decisions. Because of this, the Guide does not provide clear guidance supportive of implementation of federal facility renewal strategy.
  • — Facility portfolio perspective. The Guide generally focuses decision making on individual assets or classes of assets. This perspective is common for management of major systems or IT capital assets

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⁷ This review is related to content contained in the August 2022 version of OMB Circular A-11.

• but is ineffective for management of portfolios of facility assets. Specifically, facility portfolios include diverse assets, are commonly large, and are often geographically distributed—all have complex, competing requirements. This means facility portfolio resource-and-investment decision making is always an economic value proposition that is balancing trade-offs to optimize overall outcomes. At the facility portfolio level, decision making is never as easy as a cost-benefit or earned-value management analysis, and the Guide’s scant guidance in this area significantly limits its value in supporting federal facility renewal strategies as defined in this report.
• OMB Circular A-123—Management’s Responsibility for Enterprise Risk Management and Internal Control. While this circular is an excellent reference on the subject, it is too general and does satisfactorily cover how its guidance should be applied or implemented. Its stated purpose is to support implementation of OMB Circular A-11, and it provides a wealth of information on enterprise risk management and internal controls that apply to a whole range of objectives, including those beyond classic financial management activities led by the chief financial officer. The problem with this approach is that it is unclear when and to what extent this guidance applies to federal facilities renewal strategies or similar topics. Study of the guidance makes it clear that OMB Circular A-123 does apply to federal facility renewal strategy implementation, but there is little evidence that agencies are aware of this or understand how to apply the guidance provided.

Review of OMB Policy Supportive of Federal Facility Asset Management

The committee found one additional OMB policy area limiting to federal facility asset management, a topic broader than developing federal facility renewal strategies: OMB Circular A-11, Section 83 (Object Classification). As stated, “Object classes are categories in a classification system that presents obligations by the items or services purchased by the Federal Government” (OMB 2020b). While this convention is foundational to federal accounting structures, it also introduces a fundamental flaw detrimental to asset management and therefore to the implementation of federal facility renewal strategies.

OMB’s definition of object classification focuses on the purchasing action and not on the asset. This convention is fully consistent with congressional oversight of executive branch expenditures, but also makes it exceedingly difficult to calculate or report expenditures consumed by individual assets or asset groups. This problem is related to the way federal contracts are let, which groups together work performed on many assets. Other problems are introduced when one type of

purchase (e.g., personnel compensation or fuel oil) is not traceable to individual assets or groups of assets given current accounting practices.

OMB’s current object classifications, as implemented through agency financial accounting policies, do not support simple accounting practices to determine the amount of appropriated funds expended on specific assets or asset management activities managed through federal facility renewal strategies. As a result, it is exceedingly difficult to determine what money is spent on what facility asset. This makes it nearly impossible to compute total ownership costs and life-cycle costs for assets and asset groups, although doing so is fundamental to facility investment decision making.

This means federal real property asset managers are unable to evaluate basic resource-and-investment decision-making objectives, such as how performance is affected by a 5 percent reduction in maintenance budgets. Absent a correction to OMB’s object classification convention, federal agencies will continue to be unable to produce requirements-based budgets supporting implementation of federal facility renewal strategies as detailed in this report. This topic is further addressed in Appendix F, through development of the accounting transparency principle and in Recommendation 1 (see Chapter 7).

Real Property Capital Plans

The last topic, also covered in Appendix E, is real property capital plans. OMB M-20-03, “Implementation of Agency-wide Real Property Capital Planning” requires agencies to demonstrate evidence of compliance with OMB Circular A-11 through implementation of their agency capital plan. Guidance detailing real property capital planning links back to the Capital Programming Guide and its description of an agency capital plan. In this report, the agency capital plan and OMB M-20-03’s real property capital plan specification are understood to be the same thing. Specifically, it is understood that OMB policy through M-20-03 requires agencies, for the first time ever, to evaluate and report value to be generated from real property in their real property capital plan. OMB M-20-03 directs the FRPC to act as the authority for reviewing real property capital plans, determining their adequacy in managing agency facility portfolios, and supporting achievement of agency mission objectives.

CONCLUSION

This chapter builds from the problem statement established in Chapter 1 and details the basis and foundations for asset management to serve as the means to generate federal facility renewal strategies. Combined, these chapters make clear a progression of federal facility asset management advancements spanning more than a half century. They also illuminate the need and opportunities for improvements. Findings derived from this review are as follows:

The next chapter will identify leading industry and international standards advancing asset management systems and principles, and introduce a series of principles needed to establish elements of facility renewal strategies.