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Strategic Stewardship: Prioritizing and Aligning Your Capital Renewal Program

| August 25, 2016
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Sean Sweeney

by Sean Sweeney

Thirty-one million baby boomers attended college. Almost 48 million Millennials have followed in their footsteps.1 This growth in the student population fueled the expansion of U.S. campuses in both gross square footage and overall size during the 1950s and 1990s.2

Budgets and resources were shifted to build new space and as a result scheduled and preventive maintenance was curtailed and on occasion ignored. This “deferral” of maintenance, coupled with the aging of the 1950s and 1990s buildings, has now left campus planners, facility departments, and administrators with capital assets that require large investments to repair or replace systems, which in some cases are unserviceable.

A July 2016 Atlantic magazine article reports that “after years of budget cuts and continuing austerity, universities and colleges collectively face a shortfall of a record $30 billion” for deferred maintenance. Commercial landlords know the value of their buildings and the correlation between highly maintained space and the ability to demand premium rent.

So why don’t universities and colleges direct funds and resources towards reducing their deferred maintenance problem similar to commercial landlords?

Lack of a capital renewal discipline is a common issue. Many institutions have allowed deferred maintenance risk to grow for decades, and there are some estimates that for every $1 you delay spending today will cost you $4 in the future. Many within the administration consider their existing buildings an important part of the school’s identity. Capital renewal is difficult, because campuses face limited physical swing space, lack of funding, or limited staffing. Space is a dwindling resource on campus.

Colleges and universities also focus heavily on their scholastic mission and academic enterprise, often deferring maintenance in favor of existing funding going to academic programs, securing research opportunities, or supporting a capital project. Facility departments are staffed to handle the most basic repair and maintenance needs. They are not staffed to initiate, govern, and manage a capital renewal program that will drive down deferred maintenance campuswide.

I have initiated capital renewal programs at several institutions and saw firsthand the importance of measuring the deferred maintenance issue through the use of a Facility Condition Index (FCI). FCI is the building replacement value as compared to the total cost of maintenance/repairs.

For example, a building replacement figure of $100 million as compared to the total building repair costs of $50 million creates an FCI of 0.5. Unabated, the FCI continues to grow relative to the replacement cost, while the deferred maintenance expense increases over time. The FCI is the cornerstone of your campus renewal program to present a defensible, transparent strategy to solve the deferred maintenance dilemma.
The capital renewal discussion is today’s hot campus issue. Handling the issue successfully means finding alignment between leadership, administration, and faculty in the prioritization of capital renewal projects.

1 Eileen Patten and Richard Fry, “How Millennials today compare with their grandparents 50 years ago,” Pew Research Center, March 19, 2015.
2 Sightlines State of Facilities In Higher Education 2015 Benchmarks, Best Practices & Trends.

Sean Sweeney is associate vice president at Arcadis.

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Category: All, Education

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