1. Ivan Graff, PE, CFM, CCE, LEED AP Office of Management Office of Engineering and Construction Management Look at the notes too.

2. Why deferred maintenance matters Understanding terminology and requirements Current trends (2007 – 2010) Finding deferred maintenance contentment Forthcoming changes June 14, 2011 2011 FIMS / RE Workshop2

3. 3 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 agencys 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, 2011 2011 FIMS / RE Workshop

4. 4 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, or capability. June 14, 2011 2011 FIMS / RE Workshop

5. June 14, 2011 2011 FIMS / RE Workshop5 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 ; Entire Lifecycle

6. June 14, 2011 2011 FIMS / RE Workshop6 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

7. 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 2011 FIMS / RE Workshop7

8. 8 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 Departments 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. June 14, 2011 2011 FIMS / RE Workshop

9. 9 GAO now seems less concerned with condition only because FRPP tracks it. Condition remains a concern High Risk since FY 2003. June 14, 2011 2011 FIMS / RE Workshop

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11. 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 2011 FIMS / RE Workshop11

12. June 14, 2011 2011 FIMS / RE Workshop12 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 capital improvements, 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)

13. June 14, 2011 2011 FIMS / RE Workshop13 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. 14 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, grounds 2. Betterments like upgrades or in-house construction 3. Conversions or facility replacements Does include replaced systems that –1. Conserve energy and water 2. Have lower emissions 3. Contain renewable components June 14, 2011 2011 FIMS / RE Workshop

15. 15 The 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 Definitions Lets agree that for this discussion that a repair is a type of maintenance June 14, 2011 2011 FIMS / RE Workshop

16. June 14, 2011 2011 FIMS / RE Workshop16 Operations Maintenance Betterments Expense Type Typical of Activities that...Examples Operations Support the use, but do not affect the function or longevity, of systems or assets Cleaning Grounds care Snow removal Waste disposal Utilities Pest management Safety equipment Security Audio / visual Material handling Fleet management IT / telecom Maintenance Impact systems or assets AND Occur on a schedule OR Address unexpected or impending failures Periodic or occasional testing and inspection Routine repair or replacement of parts including belts and lamps Adjustment; 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 door Increasing electric service to a building Constructing a storage structure for use by occupants in an existing adjacent building Note: Underlined operations example expenses tracked in FIMS

17. 17 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: Its the Tree! A bare tree June 14, 2011 2011 FIMS / RE Workshop

18. 18 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. June 14, 2011 2011 FIMS / RE Workshop

19. 19 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) June 14, 2011 2011 FIMS / RE Workshop

20. 20 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 schedule June 14, 2011 2011 FIMS / RE Workshop

21. 21 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 June 14, 2011 2011 FIMS / RE Workshop

22. 22 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. June 14, 2011 2011 FIMS / RE Workshop

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24. 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. June 14, 2011 2011 FIMS / RE Workshop

25. June 14, 2011 2011 FIMS / RE Workshop25 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. ActiveClassicLimitedObsolete 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 3 rd party No support or parts available Failure results in long outages and sub-optimal repair practices Courtesy of: ABB Inc.

26. 26 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. June 14, 2011 2011 FIMS / RE Workshop

27. $222M Increase $235M Increase June 14, 2011 2011 FIMS / RE Workshop27

28. June 14, 2011 2011 FIMS / RE Workshop28 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 Operating 2 Operational Standby 3 Shutdown Pending Transfer 6 Operating Pending D&D 7 Operating under an Outgrant

29. ItemUp Side Other Side DM increases by $222M from FY 09... 5 of 10 programs reduced DM by $72M 5 of 10 programs increased DM by $294M Bottom Line: Reported to CFO a DM total of $4.098B with 70% in acceptable condition June 14, 2011 2011 FIMS / RE Workshop29 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

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32. June 14, 2011 2011 FIMS / RE Workshop32 Financial Indices vs. Average Annual RPV Growth FY 2007 - 2010

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45. June 14, 2011 2011 FIMS / RE Workshop45 NYU Medical Center

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49. 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 2011 FIMS / RE Workshop49

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51. Exposure drafts expected on: Measurement and Reporting Recording Impairments June 14, 2011 2011 FIMS / RE Workshop51

52. Whats bothering FASAB? Not all agencies report DM for General PP&E (thats 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 dont expend it Unfunded M&R for DM – I need but I have no money June 14, 2011 2011 FIMS / RE Workshop52

53. 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 2011 FIMS / RE Workshop53 Not by Critical / non-critical Low / High Estimates Funded / Unfunded Acceptable condition Ownership

54. June 14, 2011 2011 FIMS / RE Workshop54 Concept: Had the money, didnt spend it Year 1Year 2

55. 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 Value 2.Carrying value 3.Output value –or - Cash flow value June 14, 2011 2011 FIMS / RE Workshop55

56. 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 2011 FIMS / RE Workshop56

57. June 14, 2011 2011 FIMS / RE Workshop57 On the road to the Nevada National Security Site Established in 1951 Questions & Comments Ivan.graff@hq.doe.gov 202-586-8120