CHAPTER FIVE

Asset Analysis

The Department of Public Works began privatizing its facilities management services in the mid-1990s, because it did not have the personnel to adequately manage and maintain the increased amount of state-owned property. Since then, the amount of space privately managed has increased significantly. At the end of FY 00, 6.8 million (92 percent) of the 7.3 million square feet of space under the department's care and control was managed by private contractors.

The program review committee examined several factors regarding DPW's property management inventory using data obtained from the department. The analysis included the:

• amount of space managed by DPW over time;
• trend toward private management of the facilities under DPW's care and control; and
• costs incurred by DPW to manage office space as well as private contractors' costs. (The cost analysis also includes a comparison of DPW costs with those developed by BOMA for buildings located in Hartford.)

Amount of Space Managed

Total square footage. Figure V-1 highlights the total square footage under the care and control of the Department of Public Works for facilities management purposes for FYs 95-00. As the figure shows, the total square footage has increased sharply over the period analyzed. In FY 95, DPW was responsible for overseeing facilities management services for 2.1 million gross square feet of property. In FY 00, that number rose to 7.36 million square feet - or 249 percent.

Although properties are under DPW's care and control for facilities management purposes, the department does not directly manage each property. Figure V-1 provides the breakdown of the total square footage managed directly by DPW and the amount managed by private facilities management contractors hired by the department. The amount of space managed by DPW in FY 95 was 1.3 million square feet, or 63 percent of that year's total. In FY 00, DPW directly managed just under 8 percent of the total space under its control. This is due to DPW's increase in the use of private companies to provide facilities management services for the buildings under the department's care and control. It is fair to say, over the period examined, DPW has been steadily implementing a program of outsourcing the management of facilities under its care and control.

Surplus property. In addition to providing facilities management services for occupied buildings, DPW is responsible for maintaining property deemed surplus by the state before the property's final disposition. The amount of surplus property transferred to DPW has also been increasing since FY 95. Most notably, several large state hospital campuses (e.g. Fairfield Hills, Norwich, and Seaside Heights) accounting for several million square feet, are now under the department's care and control.

It is important to note the level of facilities management services necessary for surplus properties is different than nonsurplus facilities. A fully occupied facility in continuous operation takes more resources to manage than vacant or partially occupied surplus facilities. This does not mean surplus properties are without staffing and budgetary expenses, but that they are less resource-intensive than fully operating properties. Figure V-1 shown above provides the total space managed, including surplus property.

Figure V-2 compares the total amount of space managed with the amount of surplus property for FYs 95-00. The figure shows surplus property under DPW's care and control has increased from 217,600 square feet in FY 95 to 3.1 million in FY 00. This represents an increase of 1,326 percent. During the same period, the amount of nonsurplus property under DPW's care and control rose by 2.4 million square feet, or 126 percent.

Figure V-2 also shows the amount of space managed has varied from year to year when surplus property is excluded from the total. For example, in FY 95 surplus property accounted for 10 percent (217,600 square feet) of the total space under DPW's care and control. In FY 98, surplus property accounted for almost 48 percent (3.4 million square feet) of the total space managed by DPW. In FY 00, surplus property had declined to just over 42 percent (3.1 million square feet) of the department's facilities management inventory.

Figure V-3 shows surplus space managed by private contractors increased 1,586 percent between FYs 95-00, from 184,000 square feet to 3.1 million. In FY 95, surplus space managed by private contractors accounted for roughly one-third of the total amount of all surplus space. In FY 00, private contractors managed all 3.1 million square feet of surplus property.

DPW managed just over 15 percent (34,000 square feet) of all surplus space under DPW's care and control in FY 95. That percentage jumped to 45-50 percent respectively (1.5 million square feet) for FYs 98-99, because of the addition of state hospital campuses as surplus property as mentioned earlier. The amount of surplus space directly managed by DPW dropped to zero in FY 00.

Summary of Findings: Amount of Space Managed

• The amount of space under DPW's care and control has increased 249 percent between FYs 95-00 - from 2.1 million gross square feet to just under 7.4 million.
• DPW has been steadily implementing a program of outsourcing management of facilities under its care and control.
• Private management companies managed 92 percent of the space under DPW's care and control at the end of FY 00 - up from 37 percent in FY 95.
• Surplus property under DPW's care and control increased 1,326 percent between FYs 95-00 -- from 217,600 square feet to 3.1 million. Non-surplus property increased 126 percent -- from 1.9 million square feet to 4.3 million.
• Surplus property accounted for 10 percent of the total space under DPW's care and control in FY 95. In FY 00, surplus property accounted for 42 percent of the total space managed.
• In FY 00, private contractors managed all 3.1 million square feet of DPW's surplus property.

Cost Analysis

The Facilities Management Unit has not conducted a detailed analysis of facilities management costs as part of any overall planning process. Several years ago, the facilities unit began maintaining records regarding the operating expenses of the property management companies it uses. This past fiscal year, the unit began making some very general comparisons of contractor costs with those from BOMA for the Hartford area. The committee was told, however, the analysis is difficult to keep up because the staff performing the analysis has other facilities management responsibilities.

The committee was able to obtain facilities management expense reports from the department's finance unit for fiscal years 1995 through 2000. The reports provide the basis for the cost analysis presented below.

Overall facilities management expenses. Figure V-4 shows the trend in net expenditures incurred by DPW for its facilities management services. Net expenditures are those directly attributable to DPW for facilities services. The expenses analyzed include all personal services and other expenses, and account for reimbursements made to DPW from other state agencies. Overall, DPW's net expenditures for managing facilities under its care and control totaled $20.1 million for FY 00. This represents a 128 percent increase from the $8.8 million spent in FY 95. As mentioned earlier, the department began increasing its use of private management companies to manage its steadily-growing inventory of property under DPW's care and control in the mid-1990s. Thus the large increase in expenditures between FYs 95 and 96.

Figure V-4 also highlights facilities management expenditures by managing entity. Expenditures for facilities directly managed by DPW have decreased by one-third since FY 95, to the five-year low of $4 million in FY 00.

Expenditures for private managers steadily increased over the time period analyzed. In FY 95, DPW spent just over $2.8 million on outside property management contractors. In FY 00, the department spent $16.2 million - an increase of 469 percent - reflecting the increased-use of private management companies.

Costs per square foot. At the recent program review committee public hearing on facilities management, the DPW commissioner testified private companies perform facilities management services "cheaper" than DPW. Although the Facilities Management Unit does not maintain adequate data for such analysis, committee staff reviewed cost information obtained from the department's financial management unit.

Figure V-5 illustrates total square foot costs, broken down for DPW and private managers. In all but FYs 98-99, private managers performed facilities management services less expensively than DPW.

The committee believes the aberrations in FYs 98 and 99 were due to the large increase in surplus property directly managed by DPW during those two years. (A more detailed analysis of the effects of surplus property on costs is provided later in this chapter.) The committee also believes the considerable difference in cost per square foot for FY 00 is due in part to: 1) the absence of surplus property from DPW's direct management responsibilities (as noted earlier, FY 00 marks the low point in the overall number of square feet directly managed by DPW); and 2) the department having the same number of staff as in FYs 98-99 when the number of square feet managed was considerably higher than FY 00.

Surplus property. Figure V-6 provides costs per square foot when surplus property is excluded. This was done to account for any differences surplus property may have on costs.

Figure V-6 shows DPW's cost per square foot cost was lower than that of the private managers in FYs 95-97. During these years, DPW managed roughly 1.3 million square feet of space, excluding surplus property. Since FY 98, DPW's square foot costs increased well beyond those of private contractors. Although private contractors have managed increased amounts of surplus property since FY 95, the amount of non-surplus property has also increased, helping keep costs at a relatively constant level, as illustrated in the figure.

Private sector cost comparisons. Facilities management costs incurred by DPW were compared with average property management costs for 17 private sector buildings located in Hartford. The private sector costs were published by the Building Owners and Managers Association in its "2000 Experience Exchange Report."

The time frame used in the analysis differs somewhat between BOMA and DPW. The BOMA calculations are based on the 1999 calendar year, while DPW figures are for the 1999 state fiscal year, which ran through June 30, 1999. As such, only six months of 1999 actually overlap between the BOMA and DPW figures.

The DPW expense information includes only specific types of properties to make the comparisons between the department and private sector facilities management cost information more balanced. State-owned properties included in the analysis are properties classified by DPW as either Class A and Class B, and within the Hartford area. Properties directly managed by DPW were also excluded, because relevant cost data are not tracked -- only properties managed by private companies hired by DPW were used for this particular analysis.

The DPW information examined is based on gross expenditures rather than net expenditures, since the BOMA report only uses gross expense data. Gross expenses for properties under DPW's care and control are the total costs to all state agencies, not just DPW, for facilities management services provided by the department. Gross expenses do not account for reimbursements to DPW from other agencies. Net costs, as used in the analysis provided earlier in this chapter, are the actual DPW expenditures for facilities management services. Net costs are calculated by subtracting the amounts reimbursed to DPW from the total expenditures.

Table V-1 shows the various characteristics of the buildings used for this analysis.

Property management costs for DPW and the private sector buildings were analyzed in several ways, including:

• comparing overall operating costs on a per square foot basis for DPW properties and private sector properties; and
• analyzing square foot costs between DPW and the private buildings for several key facilities management expense categories, which include cleaning, repairs/maintenance, security, utilities, roads/grounds, and administration.

Figure V-7 compares the square foot operating costs for the 10 DPW buildings with the 1999 average costs for the 17 private sector buildings in Hartford represented in the BOMA report. The figure shows DPW with a lower overall square foot cost than the private buildings, based on the six facilities management categories. The operating cost for DPW buildings is calculated at $4.80 a square foot. Using the same six categories, the total average operating cost per square foot for the private sector buildings is $6.66 - or 39 percent greater.

Figure V-8 compares average operating expenses per square foot for DPW with the average costs for the private sector properties by line item using the six facilities management services outlined above. DPW shows lower costs in all but the roads/grounds category.

It is important to note, although Figure V-8 shows DPW with lower costs in most of the facilities management functions analyzed, the figure does not account for the overall quality or level of services provided. For example, even though DPW has an operating cost/square foot for cleaning that is almost 40 percent lower when compared to the private sector buildings, the level of cleaning at DPW buildings may be much lower than that at the private buildings, or the experience level of the cleaning staff at DPW buildings may be lower and thus less expensive.

Summary of Findings: Cost Analysis

• Net expenditures for managing facilities under DPW's care and control increased 128 percent between FYs 95-00 - from $8.8 million to $20.1 million.
• Expenditures for facilities directly managed by DPW decreased by one-third, from $6 million in FY 95 to the current five-year low of $4 million in FY 00.
• DPW spent just over $2.8 million on outside property management contractors in FY 95 and $16.2 million in FY 00 - an increase of nearly 470 percent. This is further confirmation DPW is increasing its use of private management companies to manage facilities under the department's care and control.
• Between FYs 95-00, private managers hired by DPW performed facilities management services less expensively than the department, except for FYs 98-99 (The committee believes, however, these are aberrations based on several factors highlighted above.)
• DPW's square footage costs were lower than those of private managers in FYs 95-97 when surplus property was excluded from the analysis. Costs per square foot for DPW have since increased beyond those of the department's private contractors.
• Compared with private sector buildings, and using selected facilities management services, total operating cost for DPW buildings is $4.80 a square foot, while the average cost for private sector buildings is $6.66 - or 39 percent greater.
• DPW shows lower costs than private sector buildings in all facilities management service categories except roads/grounds. (Lower costs do not necessarily equate to comparable quality or level of service, which is not accounted for in this analysis.)

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