Document created: 24 August 04
Air University Review, May-June 1970

Life Cycle Cost—
Facility Application

Lieutenant Colonel C. W. Lamb

Those of us involved with government facilities often forget that as clients dealing in real estate we are the designer, constructor, owner, occupant, and to a limited degree the disposers of all real property. This means that we live with our own end products and that decisions made during the design and construction phases not only determine initial cost of construction but also directly affect expenditures required during the owner-occupant phase. Regardless of when the expenditure occurs, we are responsible for spending government funds. Yet all too often we tend to divide this responsibility into two distinct and separate entities, one covering the design and construction phase and the other covering operations and maintenance. We also functionally organize and program funds in the same manner. These activities should more appropriately be combined to insure that we consider all costs in the design process, and this is what we are attempting to do in Air Force Civil Engineering. Our goal is to insure that during the design phase we consider total life cycle cost as we strive to maximize construction quality and minimize cost.

Really the concept of total cost is not new. We have all sometimes had occasion to emphasize and implement total cost procedures. What is “total cost”? It is simply the sum of initial cost, lifetime operations cost, and lifetime maintenance cost. We need a common base for evaluation so that future operations and maintenance costs must be converted into present worth at current dollar values, added to initial cost and referred to as the life cycle cost. Although this article will deal primarily with our experience to date in military family housing, the concepts are applicable to all types of facilities.

Before implementation of this concept of life cycle costing, the first step was to develop a theoretical economic feasibility study. The study was entitled “Optimal Solution: Construction Cost Plus Maintenance Cost Plus Operations Cost.” The method of converting all future cost to present worth and converting this into the uniform annual cost was reduced to a mathematical model applicable to family housing programs.

The next step was to develop a method to implement this theory. A method had to be established for awarding construction contracts on the basis of evaluating bit terms of life cycle cost. This was a most critical phase. It was the key to assuring that if the government was willing to award contracts on a basis other than low initial bid and pay for improved products, industry would be required to reciprocate by improving its guarantees and standing behind its products dollars, not just sales pitch.

How to make the manufacturer stand behind his guarantee was the next questions. Should the contractor be responsible for enforcing the guarantee? Should the manufacturer and the contractor be jointly responsible for the guarantee, or should this be a directly responsibility of the manufacturer? This question introduced yet another problem—evaluating each manufacturer’s guarantees on an equitable basis. The most obvious solution to prepare a standard guarantee clause, state what specific items were to be covered by guarantee, and allow each manufacture state the period of time (in years) that he would guarantee his product. Thus the government assumes the prime lead in controlling and establishing types of guarantees.

Specifications were developed which required the manufacturer to furnish the contractor with his completed guarantee and be prepared to bond the guarantee in the amount of the bid item for his material if that bid proved to be the low evaluated bid; and required the contractor to furnish with his bid a certification, signed by the manufacture, the bonding company, and the contractor, that the manufacturer could and would furnish a bond in the dollar amount of the bid item if required to do so. The specifications also required that the contractor receive, prior to completion of the contract, a statement from the manufacturer that the materials had installed in accordance with the manufacturer’s recommended procedures and to the manufacturer’s satisfaction. Thus, if his work satisfactory, the contractor was ultimately relieved of all responsibility for the guaranteed material, and the manufacturer became direct1y responsible to the government.

With theory and method of implementing resolved, we needed to test the procedures on some actual family housing projects. The type of project selected was for prefinished siding, since the product was controllable and several pending projects involved re-siding of family housing. The first project selected was at Loring AFB, Maine, with the bid opening in April 1968; the second was a Defense Construction Supply Center (DCSC) contract for procurement of siding for repair of houses damaged by an earthquake at Misawa AB, Japan, with the bids opened in October 1968; the third was at Fairchild AFB, Washington, with the bid opening in November 1968; and the latest were the second and third increments of the re-siding project at Loring AFB, with bid openings in December 1968 and June 1969.

To insure that all parties clearly understood the procedures, we had to establish and describe in the bidding documents a standard method for the basis of award. The following standards were selected: The time period specified was 25 years. The government would anticipate future maintenance and repair costs based on the manufacturer’s submitted guarantees as to color fading, costing, and substrate.

A five-year painting cycle would be used, starting at the end of the submitted guarantee period for color fading or coating guarantee, whichever was least, and complete replacement would be anticipated at the end of the substrate guarantee period. Future painting cost would be estimated by using a basic cost of $0.06 per square foot, increasing 3 percent per year (not compounded). Replacement cost would be estimated by increasing the unit bid price by the same 3 percent procedure.

Our actual bid experience with the four siding projects was most interesting, since this was the first time to our knowledge that the life cycle cost procurement had been used by a government agency for facility projects. The experience gained from each bid opening was reflected in succeeding procurements. Manufacturers also appeared to be involved in a learning process, as their individual bid responses continued to change with each opening. The competitiveness of the commercial market was a strong catalyst in this learning process. For example, declaring a bid non-responsive for failure to submit written guarantees accelerated industry’s evaluation of its previous sales-pitch guarantee versus a realistic dollar-backed guarantee.

At the first bid opening at Loring in April 1968, bids were received on three types of products; however, those bids that were not accompanied by the required provision for bonding of the guarantee were declared non-responsive. Although only one bidder was finally considered acceptable, the fact that an award was made for a facility contract using life cycle cost procurement procedure was in itself a major breakthrough.

The response received to this invitation to bid proved to us that our concept was feasible and that contractors and manufacturers would respond to this method of procurement if required to do so.

Perhaps the most significant changes on the part of manufacturers were the steady increase in guarantee periods, changes to standard products, selection of contractors, and general increase in level of interest. A review of guarantees showed that one major manufacturer, who at first would not even submit a guarantee, subsequently changed to 10-year guarantee on color fade only and finally to 10 years on color fade and surface and 25 years on substrate. A second manufacturer voluntarily changed his 25-year guarantee on surface and substrate to 30 years at the same time the first manufacturer went to 25 years. The effects of competition were apparent, and we now expect at least 15 years on color fade and 30 years on surface and substrate.

Manufacturers also began to recognize deficiencies in their products which restricted their ability to bond their guarantees. As a result, one manufacturer withdrew one type of product from the market altogether and modified two others. Other manufacturers are working closely with the coatings industry to improve both bonding qualities and retention. Others are evaluating installation procedures and accessories as a result of inspecting contractors’ work in the field. Certain manufacturers, whose products to date have not been able to meet technical requirements, are actively trying to improve their own product and technical prod standards within the industry.

In the past a manufacturer, bas could sell to any prospective contractor not be overly concerned with actual installation. However, now it is to his advantage be more selective and insure that bond and certificates are provided to reputable firms capable of properly installing his product.

In general, industry’s interest in this type of procurement increases day by day. We anticipate that this interest could lead to a new concept in specifications. We could state the system required, define what components comprise the system, and let each manufacturer select his standard product that best fulfill the requirements for our system. The manufacturer would be in a position to submit his quality-line product, knowing that the contract award would be determined on the basis of the life cycle cost rather than on initial low bid. For example are developing a roofing specification that defines the roof system, establishes the min acceptable performance criteria, and pi manufacturers to bid and bond their system.

As stated earlier, we see unlimited application of this life cycle costing procedures. Why not design a whole housing project life cycle costing concepts? This would the design to an unlimited selection of materials, each component being evaluated own relative merits. Something of this magnitude would require a coding system and a computer program to evaluate all the materials involved. For a total design project the life cycle costing procedures could be al during an early stage of design development and used as a design tool in selecting the materials to be specified. We envision a slate of materials, all of which are appropriate and acceptable from acceptable from an engineering viewpoint, being evaluated on the basis of life cycle cost. By use of a computer program, the combination of materials that would result in the least life cycle cost could be compared. This scheme could be most effective in a situation where there is a Congressional limitation on cost of construction such as we have on family housing. If we can prove by life cycle cost analysis that with an increase in, initial construction money we can reduce future expenditures and actually spend less money during the life of the structure, Congress should be more receptive to changing such limitations. In anticipation of actual use of life cycle cost in a design concept, a second feasibility study, entitled “Optimal Design,” was developed, describing basic design procedures, housing component and material coding systems, sample computer program and logic for developing anticipated operation and maintenance costs. In support of the FY 70 military family housing program, we have authorized design of a 300-unit family housing project at Davis Monthan AFB, Arizona, utilizing the concepts of life cycle cost. An architect-engineer has been hired, and the project is well into the design phase.

Review of one structural component will clearly demonstrate use of the life cycle cost during the design process. The following is a simplified analysis of various exterior wall systems. The life cycle cost includes both maintenance cost and variable heating and cooling cost calculated for the specified coefficient of heat transfer.

Thus it is readily apparent that wood frame with stucco would be the cheapest system, both initially and for the 40-year life of the structure. Conversely, load-bearing brick would be the most expensive. Since this is still the design phase, we are not limited to mandatory acceptance of the least-cost system or mandatory exclusion of the most expensive. Any system could be actually selected at this stage; however, the engineer making the decision and all review agencies not only would be aware of the cost implications but also would have immediate visibility of the detailed cost comparisons, both initial and long-range. This would be a most valuable tool in those areas where material is normally considered designer’s choice or where a difference in engineering judgment exists. It also puts a price tag on pure aesthetic decisions, which are of significant import with design of any facility but particularly family housing. This is a distinct advantage over conventional design procedures.

Analysis of the example also illustrates the fallacy of stereotyped criteria and/or decisions. In the past we have used a stringent standard coefficient of heat transfer of 0.05, which was later relaxed to 0.10. A comparison of uninsulated slump block (factor of 0.334) and insulated (factor of 0.10) clearly shows that the cost of improving the insulation qualities to an arbitrary standard would not be economically justifiable. Thus an incentive would exist which would stimulate designers to consider alternate solutions wood frame with stucco and uninsulated slump block. The slump block could act as both an aesthetic highlight and deterrent to damage in such areas as a carport.

The requirement for designers to estimate anticipated operation and maintenance costs does present special problems. One of the more significant is the availability and credibility of actual experience cost data, for both initial construction and operations and maintenance, in sufficient detail for application not only to a facility component but also to specific material selection within that component. After the architect-engineer for the Davis Monthan project reviewed limited data available at both base and Headquarters USAF level, he found it necessary to contact local contractors, suppliers, and maintainers for additional information. An extensive data base is being compiled to support each life cycle cost analysis for a specific facility component. This data base and learning curve should prove invaluable in design of future projects.

It is anticipated that this same type of data could prove invaluable during the construction phase. If construction fund limitations should become a problem, materials selected for negotiation could be considered in light of both initial savings and future operation and maintenance costs. This would greatly reduce the possibility of last-minute money decisions creating maintenance nightmares.

There is still a long way to go for full development and application of life cycle costing to facility design, construction, operation, and maintenance. Air Force Civil Engineering has assumed the initiative and taken a few small steps forward. Our progress is limited to family housing, and as yet we have not married the advantages of improved procurement procedures from our four re-siding projects with the advantages of improved design decisions from our one design project.

The future is promising, and the total scope of application to all types of facilities is limited only by our own inability or failure to recognize the full potential of life cycle costing. Every dollar saved during the life of a facility is a true and valid saving only when it is considered from a total cost viewpoint. Life cycle cost provides such a viewpoint facility application.

Hq United States Air Force

 To the Editor: The article, “An Examination of the ‘Military Mind,’” by Colonel Thomas A. Fleek in the November-December 1969 issue of Air University Review has much interested me. I would like to reinforce his article and perhaps draw a conclusion or two myself.

I do not think anyone today can deny that the challenge to the military establishment from civilian critics is more serious than at any other time. It is well founded. In an age of criticism, particularly aimed at organizational authority, the military is receiving well-deserved scrutiny. The Air Force has been somewhat fortunate in that only two issues reached the public in 1969: that of cost overruns in the C-5A procurement and the axing of a management analyst in the Office of the Assistant Secretary of the Air Force. The Army has not fared so well, and the Navy has not escaped notice. The more highly publicized episodes, coupled with dissent from “rebel” soldiers at various military posts and their support from the “militant” peace movement, leave the Department of Defense somewhat defenseless.

The military needs more introspection. Colonel Fleek’s words have illuminated the core of the problem; now I should think the Air Force, at least, would follow up on his article. Colonel Fleek clearly emphasized the schism between the ideal of the professional military and the practice of the professional military. It is this that is the root cause of the “violent profession’s” troubles. I do not think it would take much thought to find recent examples to bolster his statement: “Where the individual exercise of technological skill or general functional competence is concerned,… a strict insistence on such constraints [‘subornation, loyalty, duty, hierarchy, discipline, obedience’] and limitations may well have derogatory, results. “Voilá: Witness the events that led to the capture of the Pueblo. In my realm of operations and from my experiences, I can cite several lesser examples that not only give credence to prove Colonel Fleek’s words that “Not only can it [insistence on such constraints] inhibit creative thinking and effective operation; when the n is arbitrary decision-making, it can give rise to serious omission or error.” In combat flying and in flying training I am daily faced with situations that are the result of too stratified and subordinated thinking.

I do not wish to say that the qualities military “professionalism” are inadequate—rather I say they are misplaced. Because of the Air F management system, overcentralization of decision-making powers has led to oversupervision, which insists on subordination and loyalit to ensure that its policies are carried out. I think that this is best described by Colonel Fleek’s words: “An ‘inward-oriented’ tendency is fur encouraged, if not forced, by hierarchial and corporate considerations and constraints. These include the equating of rank with authority decision-making responsibility, . . .” (Italics mine.)

On the other hand the definition of military operations necessitates those qualities of loyalty, devotion to duty, discipline, and obedience. That is the conflict Colonel Fleek speaks of. There is a grave difficulty in applying professionalism to an organization based upon hierarchy of command. It is even more difficult for the, quote, new generation of officer and airman, unquote, who have greater educational and intellectual backgrounds. The frustration is theirs.

Young men aspire to the principles of “dedication to public service” and to “‘soldierly’ virtues,” yet the very environment in which they seek to fulfill these desires fails to reward or to encourage such energy. These are the young men who are to give the Air Force (and the other services) its more professional approach. Yet as often as they hear the word and are told to operate within a “professional” framework, the truth is that it is a facade. It is this frustration that I believe will be the seed of change to come.

From my point of view, as time goes by, the Air Force will be undermined by growing criticism and from pressures to change. It will come from these very professional young men who were trained in specialized technical skills and emerged from broader educational backgrounds. I am certain it inevitably will “set in motion powerful and far reaching influences that will ultimately affect not only the roles and duties of officers but perhaps the military structure.” I would say that such Air Force traditions as automatic promotion, the officer effectiveness reporting system, basic organizational structure, and the timing and orientation of military schools will undergo radical changes. The “system” is going out of style because of its inability to cope with modern pressures and requirements. All this means, I think, is that the Air Force and perhaps all the services will have to rely more on individual leadership (which that term really connotes, not the definition of “management” it has acquired). It will require fewer chiefs and more Indians. It will mean drastically thinning out the officer ranks. It will see a change in the mission of the service academies toward producing an elite group of leaders rather than broadly trained technicians. Throughout, it will allow the re-emphasis upon duty and loyalty with de-emphasis of subordination and hierarchy. It means ideas will be rewarded with opportunities to develop them. In short, it means a revamping of Air Force attitudes.

The dilemma will not be totally resolved because American virtues are directly opposite to military virtues. They need not be so polarized. It seems to me that with more trust of its subordinates the Air Force could gain much from the “civilian” virtues of self-reliance. (At present everything there is to do is guided and governed by a regulation or a directive.) If the Air Force changed its promotion system, initiative would again flourish, and ultimately (with performance being the criterion for joining the decision-making process) we might “resolve the present main sources of frustration and restraint.”

So, in conclusion, the conditions of “creative anarchy” are soon to blossom—particularly as long as the Vietnam question continues to plague the nation. I think the 1970s will include a magnificent advancement in liberating the “military mind.”

Randolph S. Reynolds
Captain, USAF

Contributor

Lieutenant Colonel Charles W. Lamb (USNA; M.C.E., University of Oklahoma) is Deputy Chief, Programs Management Branch, Directorate of Civil Engineering, DCS/Programs and Resources, Hq USAF. He previously served for 16 years in Civil Engineering at stateside bases and in Alaska, Germany, and Vietnam. His more significant assignments were Civil Engineering Inspector, IG, Hq 17AF, 1960-63; Base Civil Engineer, Patrick AFB, Florida, 1964-66; and with Project Turnkey for design and construction at Tuy Hoa AB, Vietnam, 1966-67. Colonel Lamb is a graduate of the Basic and Applied Civil Engineering School, Squadron Officer School, and Air Command and Staff College.

Disclaimer

The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.