ivan graff, pe, cfm, cce, leed ap office of management office of engineering and construction...

Defered Maintenance Reversing the Trend

Ivan Graff, PE, CFM, CCE, LEED APOffice of Management

Office of Engineering and Construction Management

Look at the notes too.

2011 FIMS / RE Workshop 2

Why deferred maintenance matters Understanding terminology and

requirements Current trends (2007 – 2010) Finding deferred maintenance contentment Forthcoming changes

June 14, 2011

Agenda

3

What’s Our Motivation? Executive Order 13327 Federal Real

Property Asset Management◦ Sec. 4(b): “The [Federal Real Property] Council

shall consider, as appropriate, the following performance measures . . . (i) life-cycle cost estimations associated with the

agency‘s prioritized actions . . . (iv) the operating, maintenance, and security costs

at Federal properties, including but not limited to the costs of utility services at unoccupied properties”

June 14, 20112011 FIMS / RE Workshop

4

What’s Our Motivation? 41 CFR 102-84 Annual Real Property Inventories

◦ Establishes the reporting requirement and its applicability

Federal Real Property Profile Guidance for Real Property Inventory Reporting◦ Based on EO 13327 and 41 CFR 102-84◦ Updated annually◦ Defines reporting element “Repair Needs”

Repair Needs: the amount necessary to ensure that a constructed asset is restored to a condition substantially equivalent to the originally intended and designed capacity, efficiency, orcapability.


2011 FIMS / RE Workshop 5June 14, 2011

EO 13514 and Maintenance

Section 2 Goals for Agencies(g) implement high performance sustainable Federal building design, construction, operation and management, maintenance, and deconstruction including by:

(v) managing existing building systems to reduce the consumption of energy, water, and materials, and identifying alternatives to renovation that reduce existing assets’ deferred maintenance costs;

EntireLifecycle


“Why bother maintaining

assets?”

Answer: to sustain the mission

“[M]aintenance will be used to ensure real property asset availability for planned use . . .” – O430.1B § 4(d)(5)

Perception: “Deferred maintenance

makes us look irresponsible”


O 430.1B, § 4(d)(1) states:

◦ The maintenance program will include: Condition assessments of real property assets, A work control system, Management of deferred maintenance, A method to prioritize maintenance projects, and Cost accounting systems to budget and track

maintenance expenditures.

June 14, 2011

Deferred Maintenance in O 430.1B

8

What’s Our Motivation? DOE O 430.1B Real Property Asset

Management◦ Section 4(d) Maintenance and Recapitalization

“Real property assets will be maintained in a manner that promotes operational safety, worker health, environmental protection and compliance, property preservation, and cost-effectiveness while meeting the program missions.”

◦ Section 4(g)(2) Performance Goals and Measures “Asset Condition Index . . . is the Department’s

corporate measure of the condition of its facility assets. The ACI reflects the outcomes of real property maintenance and recapitalization policy, planning, and resource decisions.”


9

Is there still a Problem? GAO now seems

less concerned with condition only because FRPP tracks it.

Condition remains a concern

High Risk since FY 2003.



Where the Data Goes


2010 Financial Report of the United States Government

◦See page 77 for property, plant, and equipment value

◦See page 183 for deferred maintenance data June 14, 2011

Where the Data Goes


What is Maintenance and Repair?

Maintenance and repairs are activities directed toward keeping fixed assets in an acceptable condition. Activities include preventive maintenance; replacement of parts, systems, or components; and other activities needed to preserve or maintain the asset.

Maintenance and repairs, as distinguished from capitalimprovements, exclude activities directed towards expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, its current use.

- FASAB SFFAS No.40 (May 11, 2011)


What is Maintenance?

The recurring day-to-day work that is required to maintain and preserve PP&E in a condition suitable for it to be utilized for its designated purpose. It differs from repair in that it is normally worked [SIC] to correct wear and tear before major repair is required, and it is usually less involved than repair work. - DOE Accounting Handbook

14

What is Maintenance?Day to day work that is required to sustain property in a condition suitable for it to be used for its designated purposes, including preventive, predictive, and corrective maintenance. – DOE O 430.1B

Does NOT include -1. Operations like cleaning, material handling, grounds2. Betterments like upgrades or in-house construction3. Conversions or facility replacements

Does include replaced systems that –4. Conserve energy and water5. Have lower emissions6. Contain renewable components


15

Maintenance Vs. RepairThe restoration or replacement

of a deteriorated item of

PP&E, such that it may be

utilized for its designated purpose.

- DOE Accounting Handbook

The restoration of failed or

malfunctioning equipment, system,

or facility to its intended function or

design condition. Repair does not

result in a significant extension of

the expected useful life.

– DOE O 430.1B

Repair DefinitionsLet’s agree that for

this discussion that a repair is a type of

maintenance



Operations ● Maintenance ● Betterments

Expense TypeTypical of Activities that . . . Examples

Operations Support the use, but do not affect the function or longevity, of systems or assets

CleaningGrounds careSnow removalWaste disposalUtilitiesPest management

Safety equipmentSecurityAudio / visualMaterial handlingFleet managementIT / telecom

Maintenance Impact systems or assetsAND

Occur on a scheduleOR

Address unexpected or impending failures

Periodic or occasional testing and inspectionRoutine repair or replacement of parts including belts and lampsAdjustment; lubrication; painting; or resurfacing

Betterments Upgrade, expand capacity, renew, or introduce, in whole or in part, systems or facilities

Replacing a sliding door with a roll-up doorIncreasing electric service to a buildingConstructing a storage structure for use by occupants in an existing adjacent building

Note: Underlined operations example expenses tracked in FIMS

17

Which is the Asset?Somewhere in

here is my asset

“Record Unit”Which is more valuable?

<

Leaves from the tree

“Retirement Units” “Record Unit”

awaiting new “Retirement Units”

Answer: It’s the Tree!

A bare tree


18

Where Do I Draw the Box? Record Unit

◦ An accounting convenience: You choose but . . . choose wisely Hint: Think real property assets

Retirement Unit◦ A property record unit may be composed of one or more

retirement units.◦ Costs to extend the life of or replace the retirement

unit shall be capitalized. ◦ All other costs related to the retirement unit shall be

expensed.


19

Maintenance Becomes Deferred When … FASAB SFFAS No.40

◦ “[It] was not performed when it should have been or was scheduled to be performed but was put off or rescheduled for a future period.”

◦ Reporting entities receive “maximum flexibility

◦ Not audited

DOE O 430.1B◦ “[It] was not performed when it should have been or was

scheduled to be and which, therefore, is put off or delayed beyond its optimum period.”

◦ DOE expects repeatable and logical maintenance program

◦ Accurate (FRPP) and verifiable (annual validation)


20

Optimum Period “That time in the life cycle of an asset when

maintenance actions should be accomplished to preserve and maximize the useful life of the asset. The determination is based on engineering/maintenance analysis and is independent of funding availability or other resource implications.”

You have a narrow band of time to catch

the train

The prudent manager effectively predicts the

scheduleJune 14, 20112011 FIMS / RE Workshop

21

Do I Ever Use Service Life? Condition assessments tell you when you have reached the

optimum period.

Inspections must occur at least once every five years.

Increasing the frequency thoroughness of inspections as the item approaches its “service life” increases the likelihood that you will catch the train.

DOE Accounting Handbook Chapter 10


22

Do I Have to Assess all Units?

DOE does not accept sampling methods for estimating deferred maintenance (FASAB: “life-cycle cost analysis”). Why?◦ Do not assume a future condition.◦ One is rarely representative of all.◦ Seeing is believing – DOE O 430.1B requires

technical evaluation and reporting of real property condition by professionals.

Models with condition-based inputs will provide a better target than text book service lives.



When do I Have a Problem?

24

Identify the deficiency and determine optimum period.◦ Many deficiencies are not at their optimum

period!

No need to report a deficiency that will not reach its optimum period for correction.

However, deferring specific classes of deficiencies (for example painting)seems short sighted.

If We Won’t Fix It, Is It Deferred?



If It Is Obsolete, Is It Deferred?

Deferred Maintenance?

A Real Property Record (record unit) No

Components (retirement units) Yes

Does obsolescence have a role in determining optimum period?◦ Yes, especially when failure impacts mission.

Active Classic LimitedObsolet

e Product, parts

and related lifecycle services have been released for sale

Spare parts made and manufacturer support available

Repair services and parts are available through 3rd party

No support or parts available

Failure results in long outages and sub-optimal repair practices

Courtesy of: ABB Inc.

26

When Does Deferred Maintenance Disappear?

We can close deferred maintenance when:◦ The work needed is complete or obviated, ◦ The facility is demolished, or,◦ The facility is permanently transferred

out of DOE or no longer leased

There is no need to zero deferred maintenance on assets ready to be archived◦ Let FIMS do the work for you

Note: if the facility remains, then the extant deferred maintenance follows, and DOE should disclose its maintenance logs to the extent practicable.


1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-$1,000,000,000.0

$0.0

$1,000,000,000.0

$2,000,000,000.0

$3,000,000,000.0

$4,000,000,000.0

$5,000,000,000.0

DEPARTMENT OF ENERGY DEFERRED MAINTENANCE TRENDS

Deferred Maintenance Growth Inflation of Existing Deferred Maintenance Reported Deferred Maintenance

Fiscal Years 1998-2010

Trend of real backlog growth turned negative since FY02 - an indication that requiring maintenance funding at industry standard levels and implementing efforts at backlog reduction are yielding results. FY08 spike mainly due to additional utility requirementat Los Alamos.

$222M Increase

$235MIncrease

June 14, 20112011 FIMS / RE Workshop 27


What you are about to see . . .

A whole lot of

charts

Assumptions Owned Operating status Buildings, trailers, and structures Not programmatic structures (3000 series)

1 Operating2 Operational Standby3 Shutdown Pending Transfer6 Operating Pending D&D7 Operating under an Outgrant

Deferred Maintenance: FY 2010

Item “Up” Side “Other” Side

DM increases by $222M from FY 09 . . .

5 of 10 programs reduced DM by $72M

5 of 10 programsincreased DM by $294M

Bottom Line: Reported to CFO a DM total of $4.098B

with 70% in acceptable conditionJune 14, 20112011 FIMS / RE Workshop 29

ACI decreases (0.314%) from FY 09 . . .

Assets with compliant inspection dates increased by 5.5%

DM increased by 5.7%RPV decreased by 1.2%

Joining and leaving the list (FY10 / FY09) . . .

1,968 assets (11%) resolved their DM, recorded as $242M in FY09

1,363 assets (8%) recorded DM of $185M in FY10 where none existed in FY 09


2007 2008 2009 2010$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

$0

$500,000,000

$1,000,000,000

$1,500,000,000

DM vs. AM Over Time

DM AM

DM AM


2007 2008 2009 2010$60,000,000,000

$65,000,000,000

$70,000,000,000

$75,000,000,000

$80,000,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

RPV vs. DM Over Time

RV DM

RPV DM


3.00% DOE RPV

2.96%CPI

4.69%CCI

Financial Indices vs.

Average Annual RPV Growth

FY 2007 - 2010


EM12%

NE10%

NNSA65%

SC13%

FY 2010 Deferred Main-tenance

EEEMFELMNENNSANRPARWSC

DM De-creased

18%

No DM Change

53%

DM In-creased

29%

FY 2009 - 2010 Changes to Asset DM


Some DM increased

Some DM decreased

By How Much?

1.00E+00

1.00E+01

1.00E+02

1.00E+03

1.00E+04

1.00E+05

1.00E+06

1.00E+07

1.00E+08

0

200

400

600

800

1,000

1,200

1,400

ΔDM+ (FY 2009 - FY 2010) Histogram

Order of Magnitude Differences (# or less)

Count

of

Valu

es

-1.00E+

07

-1.00E+

06

-1.00E+

05

-1.00E+

04

-1.00E+

03

-1.00E+

02

-1.00E+

01

-1.00E+

00

0100200300400500600700800900

ΔDM- (FY 2009 - FY 2010) Histogram

Order of Magnitude Differences (# or less)

Count

of

Valu

es



2007 2008 2009 2010$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

64% 59% 59% 60%

35%

41% 40%39%

DM by Property Type Over Time

TrailerOSFBuilding


2010

2009

2008

2007

17 19 21 23 25 27 29 31 33

Age by Property Type Over Time

Building OSF Trailer


20

07

20

08

20

09

20

10

20

07

20

08

20

09

20

10

20

07

20

08

20

09

20

10

20

07

20

08

20

09

20

10

20

07

20

08

20

09

20

10

20

07

20

08

20

09

20

10

20

07

20

08

20

09

20

10

0 - 10 11 - 20 21 - 30 31 - 40 41 - 50 51 - 60 61 - 70

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Age Trends by Property Type Over Time


Age Ranges (Years)

Asset

Count


0 - 10 11 - 20 21 - 30 31 - 40 41 - 50 51 - 60 61 - 70$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

$1,000,000,000

$1,100,000,000

$1,200,000,000

$1,300,000,000

$1,400,000,000

DM by Recorded FY and Asset Age

2007 2008 2009 2010

Age Ranges (Years)


Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct. DM Sum0 - 10 11 - 20 21 - 30 31 - 40 41 - 50 51 - 60 61 - 70

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

34%

7%

42%

72%

55%

82%

36%

53% 58%

85%

56%

70%

43%51%

47%92%

36%

23%

31%

14%

52%

46% 39%

15%

43%

30%

57%49%

Fair Share of DM by Age (Average 2007 - 2010)


2007 2008 2009 2010 2007 2008 2009 2010

% To-tal As-sets Where DM = 0

0.607035290106268

0.563134160090192

0.530307382935937

0.534992503748126

% 'DM = 0 Where Inspec-tion Date Com-plies

0.484366223553643

0.559659659659661

0.559263271939328

0.6120390090797

45%

49%

53%

57%

61%

Trends for the Most Common DM Value: Zero



2007 2008 2009 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

70% 72% 73% 84%

% of Compliant Inspection Dates

NY


2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010Building OSF Trailer

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

81%81%84%91%

55% 64%64%75%

79%70%66%86%


NY


DM Sum Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct.Building OSF Trailer

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

17%10%

Impact of Physical Barriers on DM(FY 2010)

Yes PBPINo PBPINot Used


NYU Medical Center


DM Sum Asset Ct. DM Sum Asset Ct. DM Sum Asset Ct.Building OSF Trailer

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

18% 18%

80%74%34%

16%

4%

3%

13%

29%

9%12%34% 36%

6% 11%

5% 9%

59%

28%

11% 33%

21%12%

DM in Buildings by Usage by Property Type

(FY 2010, Typical)Transportation OSFs

Storage and Industrial OSFs

Storage and Industrial

Service OSFs

Service

R&D

Other OSFs (incl civil)

Distribution OSFs

Communications OSFs

Admin., Housing & Support


2007 2008 2009 2010$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

42% 38% 42%33%

38% 36%34%

34%

20%

27% 24% 34%

DM by Mission Over Time

Mission Critical Mission Dependent, Not CriticalNot Mission Dependent


2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010MC MD NMD

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

74% 68% 74% 89%

86% 89% 88% 90%

53% 62% 60% 75%


Y N


We have learned to live with deferred maintenance, but . . .

◦ We still conduct condition assessments at least quinquennially,

◦ Even for leased assets when we maintain them,

◦ We seek out the technologies that allow for better inspections,

◦ We focus on mission critical and mission dependent before non-mission dependant,

◦ We wish age were just a number, but

◦ Fully funding maintenance will stabilize backlogs.

June 14, 2011

Finding DM Contentment


2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010MC MD NMC

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

DM, AM and Mission Depedency

DM AM


Federal Accounting Standards Advisory

BoardExposure drafts expected on: Measurement and Reporting Recording Impairments

June 14, 2011


What’s bothering FASAB?

◦ Not all agencies report DM for General PP&E (that’s real and

personal property) Heritage Assets Stewardship Land

◦ Not distinguishing between active and inactive

◦ Not distinguishing between funded and unfunded DM

Funded M&R for DM –◦ I obligate the

money but I don’t expend it

Unfunded M&R for DM –◦ I need but I

have no money

June 14, 2011

Measurement and Reporting of DM


What does FASAB want?

◦ Narrative Summary of agency: Policies for prioritizing maintenance and repair Factors considered in determining acceptable

condition Changes to prior year reporting methods, if any

◦ DM reported by (minimum) Asset category Status

June 14, 2011

Measurement and Reporting of DM

Not by• Critical / non-critical• Low / High Estimates• Funded / Unfunded• Acceptable condition• Ownership


Concept: “Had the money, didn’t spend it”

“Year 1” “Year 2”


When the service utility of the asset decreases significantly and unexpectedly

Would accelerate depreciation when◦ Full or partial loss of use occurs◦ NOT when the loss is temporary

What was the asset worth? (choose one)1. Replacement Plant Value2. Carrying value3. Output value –or - Cash flow value

June 14, 2011

Impairment: ED Highlights


What would facilities management do?◦ Work with accountants and customers to:

Distinguish between full, partial, permanent and temporary

Select an approach to diminished value

Validate replacement plant value or initial acquisition cost plus improvements & adjustments

Key benefit◦ Institutionalize the separate tracking of

suddenness and degradation or obsolescence

June 14, 2011

Impairment: FM Role & Benefits


On the road to the Nevada National

Security SiteEstablished in 1951

Questions & [email protected]

202-586-8120

ivan graff, pe, cfm, cce, leed ap office of management office of engineering and construction...

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