To identify best practices in property management as they impact on budget allocations.
Given the limited scope of our assignment, expenditure benchmarks are very general in nature and should not be considered definitive. To arrive at meaningful benchmarks, detailed profiling of buildings by class of building, type of occupancy, building type, size and age is required. The New Brunswick data is limited in that the age and quality of individual buildings are not available. In some cases the comparative data is provided for groups of buildings, in which case the sizes of individual buildings are not specifically known. Age and quality of buildings is also an unknown factor.
It is significant to note that:
Definitions
To ensure that data was as consistent as possible, the following definitions were provided with all requests for information:
Maintenance Costs - Repairs, supplies and equipment costs related to building maintenance. (For greater clarity this does not include utilities, cleaning costs, groundskeeping, security or administrative overhead)
Capital Maintenance - Major capital replacement (i.e. window replacement, roof replacement, etc.). Projects of a non-recurring nature or to upgrade an existing facility
Reserve Funds - Annual expenditures appropriated into accounts for future capital maintenance and replacements
Information was not always available in consistent formats and where adjusting assumptions have been made in interpreting data, they have been noted. To establish a common understanding of the terminology referred to in the balance of the report, the following definitions should be applied to the terms "preventative maintenance" and "planned maintenance".
Preventative Maintenance - In its most basic form, preventative maintenance is defined as:
It is reported that the total capital budget (which includes maintenance), ordinary account expenditures, has fallen from $5-6 million to $2.5 million in recent years. Ninety percent (90%) of costs in the approved operating budget envelope are fixed costs such as lease costs, energy, cleaning costs, etc. and administration. The balance of the budget has been allocated to maintenance. Since 1987 the budget has been based on the previous year's budget less a certain percentage (at least 0.5%). This budgeting procedure is somewhat lacking and has led to a systemic neglect of regular planned and preventative maintenance. Staff has been forced to delay spending until the end of the year to ensure no major unexpected emergency maintenance work needs to be done. Through a simple exercise in subtraction, whereby whatever money is left after final fixed costs such as lease costs, utilities etc. are able to be accurately projected for the balance of the fiscal year, the amount available to be spent on maintenance is derived. In a good year where fuel costs decrease or lease costs are re-negotiated downward, there has been extra money to get at "lower priority" maintenance or improvement "wish lists". Some money is used for equipment and building component maintenance and some for building upgrades such as painting and carpeting.
This budgeting procedure is somewhat inadequate. The process has not permitted satisfactory regard for the backlog of maintenance and refurbishing requirements. The Department of Supply and Services have compensated by utilizing "windfalls" from other spending categories. It is clear that these windfalls will eventually fail to meet even the basic needs and the backlog of needs will begin to overwhelm the resources at hand. A cursory visual inspection of certain assets indicates that the basic needs provisions are at the threshold of exceeding the resources at hand.
The annual capital budget of $2.5 million has been a relatively stable amount for roughly six years, which given inflation, represents a decline in maintenance activity. This decline in funding has occurred as the assets have aged, which typically requires the need for additional resources. In this environment of constraint, the practice has been to achieve the budget by limiting planned and preventative maintenance. The emphasis has been on keeping the physical plant running and dealing with emergency repairs as needed. The complaint is " we never have money to do it right, but always have money to fix it when it breaks". Staff expressed a need to increase the maintenance budget to former levels in the best interest of the Province.
By adopting the system or philosophy of having no choice but to accept "windfall spending" in preparing budget requests, there has been a failure to identify the true spending requirements. The annual budget request has remained constant. Because the system "survives" year after year on $2.5 million, despite annual requests for $5 - 6 million there is a false sense that $2.5 million is really sufficient. This correspondingly limits future options. What are unseen, are the major future costs and potential problems that are mounting from the ongoing neglect of the aging asset base and the impact this will have on future expenditure scenarios.
Capital Repairs and Replacements
As is common in government sectors, there are no capital reserve funds in the budgetary envelopes for maintenance and operations. This practice further limits the ability of property managers to adequately plan for capital repair and replacement work. However, given the budget request patterns of recent years and in the absence of formalized planned maintenance and preventative maintenance programs, it is difficult to predict the true capital funding requirement. Staff report that equipment records are inadequate. Concerns have been expressed for elevator performance and reliability. These are all symptoms of an inadequate maintenance program, ultimately leading to the possibility for total system failure.
Industry experience has proven that deferral of regular maintenance will result in an overall increase in total capital spending requirements. Failure to adequately maintain major building components, such as roofs, building envelopes and mechanical systems, results in a greater incidence of catastrophic and major failures. The result is the need to replace equipment earlier in its useful life than would otherwise be required, with the consequential financial penalties. As well, ancillary damage is caused by water leaks, freeze damage or other problems resulting from building component failures. Some examples include:
It is reported that there is no vacant space in provincially owned buildings. This reportedly causes some difficulty in planning major capital improvements. Typically the Department of Supply and Services wait for an emergency, like the need to remove asbestos, before moving people out for repairs. This is also symptomatic of inadequate funding and the lack of a systematic approach to property management. It is our observation that options that would see temporary relocation into leased facilities while renovations are scheduled may need to be considered. A variety of options and approaches need to be considered for further evaluation and analysis.
No formal "needs based" capital planning program has been identified, but "wish lists" for repairs exist and there is a sense that some large projects need consideration. For example, the 250,000 square foot Centennial Building reportedly needs to have its 35 year old windows replaced and a new central HVAC unit installed. By observation, elements of the Legislature building such as the grand ceremonial staircase are in need of renovation. Staff have identified a need to examine a strategic renovation program for this key property. However, there is no formal process to review the needs and assess the building condition and establish a case for priority for a spending allocation. The implementation of this formal process is recommended as a first step in reviewing the approach to maintenance.
The Department of Supply and Services has produced a "Capital Projects List" for 1999-2000 with $2 million of general and specific projects. As well, there is a second list of projects deemed necessary totalling $7.7 million. It appears from these lists that $5.7 million worth of projects will be deferred. Upon examination, many of these projects are related to the structural components and building envelope, two areas where neglect can lead to far reaching ancillary damage if failures occur. In adopting a more aggressive catch up spending program it would be prudent to assess the criteria for prioritizing capital projects. Criteria for this exercise should include factors such as life safety, structural integrity, as well as aesthetics and overall life cycle issues related to the remaining useful life of the facility in question as well as alternative accommodation options.
An examination of the list of government owned buildings, of which Department of Supply and Services is responsible, excluding schools, indicates that only 31 of its properties are of a significant size (over 15,000 square feet) and of these only 15 are office or administrative facilities. The balance of the buildings are detention centres, museums, courthouses and other facilities.. Developing a program to identify the administrative space requirements, as a base for evaluating the capital spending requirements for significant government owned facilities, would be a relatively manageable task. A program to evaluate building capital needs could concentrate first on the larger facilities. Proactive strategic planning, risk management modelling and prioritization management tools are required to maintain tight control of expenditures. A proactive asset management system will deliver asset managers with the data to make informed decisions about current and future expenditures, in a prioritized manner, to minimize and reduce "Crisis Management".
Anecdotal evidence suggests that recent spending has been even more restricted for educational facilities and the condition of school properties throughout the Province is of even greater concern for future capital spending. A similar review of school facilities and budgeting procedures may also be in order. Again, a proactive strategic planning approach is a prerequisite for the avoidance of "Crisis Management" for educational facilities. Specific asset management issues identified for the Department of Education will be discussed and recommendations will be put forward for consideration under the heading entitled "Education Department Maintenance Issues".
A sector by sector evaluation of building conditions and demand would be required to arrive at spending forecasts that reflect the true need and demand. The process should segregate leased building capital expenditure demands from maintenance requirements for owned buildings.
Furnishings and equipment needs are another component that is often overlooked in long term maintenance budget planning. While this factor was not examined as part of this study's analytical exercise, it should be considered as a prerequisite in any followup planning exercise.
TABLE 1 - Comparative Annual Maintenance Spending
Section II(i)
Terms of Reference
"To evaluate the property maintenance budget of the Province in comparison to standard property management".
Background
The property portfolio for New Brunswick public buildings, excluding schools and hospitals, has been analyzed to determine current levels of maintenance and capital spending. The data for New Brunswick was derived from:
Comparative data was derived from a number of sources:
This data has been analyzed to arrive at comparisons on as equivalent as possible a basis.
The process currently used for maintenance budgeting was reviewed and compared with best practices in the property management industry.
The benefits of a preventative maintenance program are:
Planned Maintenance - The regularly scheduled periodic refurbishment and replacement of building components to ensure that the building and its systems are in working order and that the maximum life expectancy of all component parts is achieved. Examples would be cyclical painting and carpet replacement.Background Issues and Scope of Review Procedures
Maintenance Budgeting and Expenditures
These are all examples where regularly scheduled maintenance will lead to the avoidance of major replacement costs.Research Findings
From 1996-1999, New Brunswick's average overall annual expenditure for maintenance of public buildings (as noted previously excluding schools and hospitals) was approximately $2.5 million, or $1.41/square foot. This represented 20.85% of all property or premises operational spending before capital projects. When compared to standard property management this represents a significant under funding of the maintenance function. The following chart illustrates overall comparative spending by other regional governments, the federal government and the private sector:
(b)Building size is a significant determinant of cost and must be taken into account when benchmarking. The smaller the facility, the higher average operating costs tend to be due to the fixed nature of certain costs. For example elevator maintenance costs are based upon the number of elevators and number of stops, not building size.
A breakdown of New Brunswick's spending by building size and eliminating various building usage categories, illustrates that spending varies by building type/use and size, but on a random basis:
TABLE 2 - Supply & Services Government Owned Buildings over 15,000 Sq.Ft. Excluding Corrections, Museums and other Facilities
An overview of the spending patterns on these facilities illustrates an erratic pattern of spending and no easily discernable "benchmark" or standard for maintenance spending. Even a direct comparison of the Regional Centres illustrates a range of spending from $0.87 to $1.61 per square foot.
The focus on "survival management" has meant that there has been little attention to establishing a meaningful budget process that identifies basic requirements for preventative and planned maintenance in the upkeep of building components. The long term implications for public safety and the useful life expectancy of government owned buildings, are not understood. The current condition of facilities is also a major unknown factor and hence the budget requirement to bring buildings up to standard is also unknown.
Due to time constraints, our research has been unable to identify industry-accepted benchmarks for maintenance of publicly owned property. It is accepted that maintenance is directly related to a number of factors including:
In conclusion, the implementation of a "proactive asset management solution" minimizes "Crisis Management" and saves capital dollars through prioritized spending and protection of valuable assets.
We have identified some asset management issues that were not included in the 1998 report. We shall provide a brief summary of the issues and suggest that these issues require further in depth analysis and examination of alternatives before possible courses of action can be recommended.
The Province operates/maintains 355 educational sites. This has to be contextualized within the following order of magnitude of statistical figures: in 1971 the educational system had 162,000 students, in 1990 132,000, in 1999 128,000 and by the year 2011 it is projected that there will be 100,000. It is our observation that with the declining trends in enrolment, the resources required to maintain the 355 school sites have to be evaluated in the context of the broader demands for Provincial resources. It is not unreasonable to conclude that perhaps some of the 355 school sites have to be critically evaluated in terms of viability and potential cost savings.
Within our terms of reference, we had limited opportunity to specifically evaluate school sites for maintenance standards and issues. Based upon five sites that were randomly selected for visitations, it was observed that the actual school structures are maintained at a generally "acceptable" level. However, the immediate surrounding ancillary infrastructure (playground equipment, playfields etc.) was often not deemed to be part of the Department of Education's maintenance responsibility, and were not monitored to the same level as the schools. Specifically, it was noted that service clubs or home and school associations often provided these ancillary facilities, and it appeared no one accepts the primary responsibility for maintaining them in good order. The general disrepair of the ancillary infrastructure has a negative visual impact on the physical school site maintained by the Department, reflecting poorly on public perception of school maintenance standards. It is inappropriate to draw conclusions on these limited observations, however, it is our recommendation that further evaluation be carried out to identify the implications and risk factors resulting from this division of responsibility for the maintenance of school structures and the surrounding ancillary infrastructures.
Lastly, our visit and discussions with the Department of Education officials highlighted the current practice of using a "Roster Rotation" system for the maintenance of the school assets. Furthermore, the professional service providers under this system are compensated on the basis of a "percentage" of the maintenance and improvement costs. In other words, as costs increase for maintenance and repair, the compensation to the service provider increases. Based upon our professional experiences, we put forward the following observations: The Ministry of Transportation in Ontario eliminated the "Roster Rotation" system, for professional services for projects above a certain dollar level, about ten years ago. In its place they implemented a competitive bidding system. This policy change resulted in savings in professional fees of upwards of 20 to 30 percent. Again, we caution drawing conclusions on limited observations, but the examination of the "Roster Rotation" system warrants further attention.
Several "rules of thumb" for maintenance and repair spending are reported, but serve only as broad tests of spending adequacy:
The National Research Council has undertaken a number of studies related to capital maintenance spending levels in an attempt to address what they call "the growing problem by asset and building managers regarding when and how to repair and replace their building stock and components". A mid 1990's review of Canadian construction statistics indicated that $8.5 billion is spent annually on maintenance, replacement and repairs. According to Vanier and Lacrosse of the NRC this is well below recommended standards. Public sector constraints and cutbacks have exacerbated spending shortfalls in all of the regions contacted.Recommendations
Based upon the review procedures performed, we believe the maintenance spending on Province of New Brunswick owned buildings in recent years has clearly been deficient, by any measure. To protect government assets and to prioritize future expenditures, while affording options on future decisions, there is a need to address the problem in a strategic manner. It is recommended that the following measures be considered:
Sophisticated asset management software is available to assist in developing meaningful asset management programs. When designed in conjunction with other information technology systems in use by the government, these packages could provide an effective and efficient tool for planning, budgeting and asset management. Annual and multi year projections for capital expenditures can be easily facilitated, segregated by category of expenditure and government sector. Once building profiles and equipment are inventoried, the impact of deferred maintenance on capital budgets can be more readily examined. One of the benefits of a proactive management system, using technology, is it permits forecasting of capital budgets incorporating multiple repair scenarios. Capital planning strategies can then be developed to suit available funding levels. The introduction of priority and risk management into the capital planning process ensures the appropriate amount of resources is effectively allocated to the highest priority maintenance first. With this tool, the asset manager is able to make proactive decisions surrounding the actual amount of funding required compared to available funding.
a) Evaluate the condition of facilities
b) Establish requirements for planned and preventative maintenance requirements
c) Establish a long term capital replacement program
d) Develop guidelines for spending priorities
e) Establish a framework for evaluating future accommodation alternatives
Education Department Capital Maintenance Issues
Scope of Review Procedures
The 1998 School Physical Plant Review Study, a very comprehensive study of New Brunswick's 355 school buildings, was undertaken to assess the quality of existing facilities using current codes, regulations and space requirements for the delivery of educational programs. This report is very helpful as it is an excellent presentation of the data. However, the 400 pages of comprehensive data is less than sufficient in presenting the asset management issues in a form that elected decision makers can readily and visually use to evaluate the urgent need for action, and to address the requirements for multi year expenditures on the educational infrastructure in the Province. This data presented in 1998 could be inputed to sophisticated asset management software to create a first rate tool for the elected decision makers to visually identify needs and to make proactive decisions surrounding the funding required in the Educational Sector as compared to available funding.
