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3 THE MAINTENANCE AND REPA . __ _ COMPONENT OF THE COST OF OWNERSHIP Building owners--and those elected and appointed officials who represent the owners of public buildings--should recognize explicitly the full cost of ownership to which they are committed by virtue of ownership. Important components of this cost are the routine expenditures for needed maintenance, repairs, and planned replacement. Characteristics of a building's design and construction, operating procedures, climate and location, and age influence the need for maintenance and repair (M&R). The owner's policies about M&R and service to tenants have influence as well. Random events such as heavy storms, human error, or air pollution may increase needs for M&R. Most of the factors that influence the need for M&R apply to individual buildings. However, the manager of a substantial building inventory may enjoy what economists term economies of scale--opportunities for savings because larger quantities of materials are purchased or personnel are more effectively uti- lized or learn by experience to be more efficient. On the other hand, costs may be incurred in managing a large inventory--such as travel among buildings or costs of keeping parts and equip- ment in stock--that offset some of these economies. In general, the following factors can have a major influence on the appropriate level of M&R expenditures: Building size and complexity Types of finishes Current age and condition Mechanical and electrical system technologies Telecommunications and security technologies · Historic or community value · Type of occupants or users · Climatic severity · Churn (i.e., tenancy turnover rates) · Criticality of role or function 17
Ownership time horizon Labor prices Energy prices Materials prices Distances between buildings in inventory While the M&R component of the cost of ownership will vary from building to building, it is possible to develop a consistent relationship between this component and characteristics of an inventory of buildings. A variety of such relationships are in use to estimate average levels of the cost of M&R. Typical main- tenance expenditure per square foot is frequently used as a yard- stick for determining what an appropriate level of M&R budget- ing should be, but such a measure is insufficiently sensitive to either external financial conditions or building characteristics. The relationship is better stated in terms of an annual percentage of the inventory's current replacement value. Based on experience and judgment, the committee proposes that the anorooriate level of M&R spending should be. on averages in the range of 2 to 4 percent of current replacement value of the inventory.iZ The specific percentage for any inventory will depend on such factors as the age of the buildings in the inventory, the type of construction (permanent vs. tempo- rary), the level of use of the buildings, the structure of the maintenance organization, and the climate. However, the rela- tionship between M&R requirements and the current replace- ment value of single buildings may vary widely and for any one building may be outside the proposed range. This 2 to 4 percent range is most valid as a budget guide for a large inventory of buildings and over time periods of several years. A small town or school district may find that a severe winter, or an older building nearing the time that a substantial renovation is warranted, temporarily raises annual M&R costs above this normal range. Such a jurisdiction may also find that past decisions to reduce construction expenditures now have, as a consequence, higher M&R costs. However, even with small inventories the 2 to 4 percent rule of thumb may be applied over a longer period of time, such as 5 to 10 years. A reliable estimate of the current replacement value of a building or an inventory is a necessary element of this budgeting rule. Current replacement value can be determined in several ways. The simplest approach estimates what it would cost in any given year to construct or purchase each building in the inven- tory. Another approach applies escalation factors to the original |2 This rule is based on the committee's combined judgment. 18
acquisition cost of the buildings in the inventory. Some agencies have developed computer programs to perform such calculations and to provide a replacement value for the total inventory each year. There may be substantial uncertainties in these estimates, particularly among the older stock of public buildings (some more than 100 years old). Each agency must evaluate its own inven- tory and develop the best approach for determining its replace- ment value. If an inventory of buildings receives an adequate level of M&R funding, a steady-state situation should exist wherein the inventory would remain in a service condition that would neither decline nor improve and a backlog of deferred deficiencies would not develop.~3 However, if a backlog exists, it is unlikely to be reduced by expenditures limited to the 2 to 4 percent level. Further deter- ioration will occur if the backlog is not reduced, and the ultimate cost of correcting the deficiencies will increase. The committee proposes that a second element of the total M&R budget must be recognized--funds required to reduce the backlog. The total budget then includes the routine M&R components, which are a continuing part of the cost of ownership, and the backlog reduction component, which is determined by the physical condition of the inventory. Assessing the size of the backlog that develops when M&R are neglected requires a condition assessment. A condition assess- ment is an evaluation of the degree of accumulated damage inferred from diagnostic observations and tests.~4 Condition assessment, at its simplest, is a monitoring activity applied regularly as a part of a good M&R program. Systems and materials are inspected on a planned schedule to determine if they are sound and functional. Standards must be available as a basis for determining when systems or materials are deviating from their anticipated condition to spot potential problems before they become critical. Condition assessment is also used to |3 This expectation depends on effective use of M&R funds, which requires adequate management and staff capability. Refer to Chapter 5. i4 The general field of building diagnostics is still relatively young and evolving (BRB, 1985~. Most diagnostic assessments are undertaken because of specific observable failures or perfor- mance problems, not for the broad assessment of backlog envi- sioned by the committee. This broader assessment is in some ways analogous to medical diagnostics that may alert a physician to a patient's potential problems or help assess the extent of those problems. 19
develop information on facilities that have not received regular maintenance or inspections so as to develop comprehensive data bases on conditions and thereby establish the scope of maintenance backlogs. If a substantial backlog has developed, several years of effort may be required to eliminate it. An appropriate M&R budget should be established to reduce the backlog as quickly as possible, which requires that repair spending must be adequate to outpace the backlog growth that occurs as a cumulative result of past neglect. No generally valid rules of thumb can be recommended for this determination. If the backlog has been eliminated, maintenance spending may be reduced to levels truly required to maintain adequate facility performance. Escrow or set-aside accounts may be established to preserve funds budgeted but not actually expended in a given year due to favorable use conditions (e.g., warmer or drier than average weather or lower than typical utilization).~5 Condition assessment should be used to assure that performance is, in fact, being maintained at target levels. Reference Building Research Board (BRB), Committee on Building Diagnostics, Building Diagnostics: A Concentual Framework, Washington, D.C., National Academy Press, l9SS. t5 Establishing such accounts in the public sector requires changes in government financial practices. 20