KU’s Strategies for Capital and Operating Savings

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KU’s Strategies for Capital and Operating Savings

From Consolidating Organizations to Developing New Revenue Streams: If It Works, It’s on the Table

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Managing a Sprawling Campus

Efficiency measures adopted as part of its 2012-2017 strategic plan are forecast to save the University of Kansas–Lawrence Campus (KU) a combined $5.5 million in the areas of construction, facilities operations, and maintenance in a single fiscal year. Specific changes include consolidating maintenance organizations for better coordination and prioritization, refining best practices in both construction and financial management, and developing new revenue streams.

The University predicted that it would save $3.1 million in the construction realm and $2.4 million in the facilities operations and maintenance realm in fiscal 2014, and it appears on target to meet that goal, says Paul Graves, deputy director of KU’s Office of Design & Construction Management (DCM). “This is part of a broader spectrum of savings that the university is pursuing across 10 business sectors.” 

Changing for Excellence

The state’s flagship university, with an enrollment of 25,000 students, KU celebrates its sesquicentennial in 2015. In 2012, it implemented a five-year strategic plan, Bold Aspirations, a visionary document that includes specific action items in support of its quest to become a top international research institution.

A main objective set forth in the plan is improving infrastructure management on the 1,000-acre Lawrence campus. The resulting cost savings, expected to be substantial, are targeted for reinvestment in academic and research priorities, such as hiring renowned professors and building state-of-the-art laboratories.

Facilities management improvements are addressed in an initiative called “Changing for Excellence,” which entailed an intensive evaluation of existing business practices.

“The Changing for Excellence objectives dovetail with the bold aspirations of the strategic plan action items,” explains Graves. “The expectation is that we shouldn’t settle for less than excellence in any area of our work, whether in negotiations, hiring processes, or project management. It really does make a difference for someone to lay out that expectation.” 

Strategic Sourcing

KU’s mandate to transform administrative and operational functions for greater efficiency and effectiveness generated a wide variety of options to reach the savings goals.

“Basically, if an approach works, it is on the table for consideration,” says Graves.

In the construction arena, one of these measures is strategic sourcing, an initiative on which DCM worked with KU’s purchasing department to establish a suite of on-call and commodity contracts with qualified vendors. This process not only reduces the time and cost of preparing individual RFPs and RFQs, but reduces the cost inflation that would have been incurred during the progression of bid notices, interview and selection, award negotiation, and contract execution in a conventional procurement process.

“We often see dramatic increases in material costs even over a few months,” says Graves. “For example, if the unit cost of concrete on a large project goes up, it could be very significant. The faster we can let a project, the better.”

In addition to achieving volume pricing by reducing the field of eligible vendors, strategic sourcing also builds stronger relationships with consultants, contractors, and vendors. 

Typically incorporating a scheme of tiered rebates, the contracts are generally set up on a one-year basis with up to four one-year annual extensions.

“Having those basically five-year contracts in place gives the contractors and vendors incentives to perform, so their contract gets renewed. They also have the benefit of being in a smaller pool so more work comes their way. KU, on the other hand, gets streamlined procurement savings.”

Previously, the discounts totaled about $1.4 million, a major part of the $3.1 million in projected construction savings, explains Graves. 

Financial Management

To improve financial management, KU adopted a policy of third-party in-house construction cost auditing for projects over $1 million. The technique has already proved itself, so far generating more than $200,000 in savings or cost avoidance on an $80 million expansion to the School of Engineering complex.

KU has also implemented the practice of consulting the university’s insurance broker for guidance on bonding strategies and to determine whether contractors’ insurance rates reflect actual market costs.

“The review of construction invoices and bond costs is now done more rigorously,” explains Graves. “We’ve always looked to get the best value for the university and do basic checks before signing off on an invoice, inspecting to make sure the work performed is acceptable. This next level entails more granular scrutiny, including cross-referencing invoices and applying word searches and other similar techniques to ensure we are not being charged for anything the contract doesn’t require us to be charged for.

“In projects done by contractors, for example, in a construction management at risk arrangement, we ask whether certain costs are legitimate and raise questions about buying vs. leasing equipment, with an eye to savings.”

Graves says that this approach has required “a bit of a culture change,” but contractors have adapted.

Construction Management

Organizational and operational changes in construction management have led to significant streamlining. The in-house construction group, KU Construction, has been brought under the DCM umbrella. With a roster of approximately 50 FTEs—architects, engineers, landscape architects, tradespeople, and support staff—DCM is the in-house design-build group for KU’s non-medical campuses.

Taking advantage of expertise already resident within the university, KU Construction is charged with interior renovations and remodeling. The 100 percent fee-funded group is treated like its own construction company. Using an in-house crew saves time and money by not having to put projects out for bid, and it lowers overhead costs. The volume of available projects is high enough that the workload outsourced to on-call contractors is still significant.

Improving the level of service is an additional benefit.

“Our crews tend to be a little more sympathetic to, or accommodating of, the special needs of working in between academic and research functions without disrupting them,” says Graves.

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More time savings result from changing the standard workweek for employee crews. Instead of five eight-hour days, the schedule has been converted to four 10-hour days.

“This conversion effectively cut by 20 percent the amount of time the crews are shuttling back and forth to their shop. They are also required to take their lunch on the job site, as opposed to returning to the shop, which they did under the previous organization.”

The use of in-house crews and the efficiency improvements in their operations is projected to have saved about $500,000 in in FY 2014. 

A Single Facilities Services Group

KU achieved another consolidation—and subsequent savings—by merging two separate operations and maintenance (O&M) groups into one organization. Previously, Housing Maintenance served the residence halls, while Facilities Operations served the rest of the campus. Now combined into a single Facilities Services organization, the new group has eliminated several redundant positions.

Graves points out that the only job losses occurred through attrition, yet the move was anticipated to have saved about $300,000 in FY 2014.

Holistic View

With nearly $800 million in new development programmed in KU’s five-year campus master plan, an organizational structure that unites its multitude of inter-related functional groups in a holistic approach is essential. Thus, DCM, Facilities Services, Parking and Transit, Environmental Health and Safety, the Sustainability Office, and Purchasing all report to the same associate vice provost, and the directors meet regularly to coordinate.

“Having common leadership really makes a difference in getting everyone on the same page,” says Graves.

The big picture view has refined many processes. For instance, DCM now takes a deeper dive into the facility condition assessments (FCAs) it performs at required two-year intervals. These more detailed, comprehensive FCAs can be used to help prioritize projects for budgeting and funding requests.

The adoption of a common GIS platform will integrate the assortment of campus maps with the enterprise asset management system for data-rich decision-making capabilities for both construction and O&M purposes. A similar migration to common software platforms in other areas will reduce license fees and software support costs, as well as improve data sharing among departments.

KU has also instituted a service center approach to handle routine functions in human resources and accounting.  

Energy efficiency and sustainability are major initiatives for both the construction and O&M groups. New buildings and major renovations must meet design criteria that is 30 percent more stringent than ASHRAE 90.1-2007, with a move to the 2010 version under consideration. Metering and benchmarking are increasingly used to uncover potential improvements in buildings with high energy consumption.

Additional Revenue Streams

The new reporting structure also supports the imposition of a 1.5 percent infrastructure renewal fee for all capital projects over $25,000. The fee is intended to generate revenue for shared infrastructure resources such as streets and utilities.

“It is not enough to cover all costs, but it augments other funding sources,” notes Graves.

KU is also exploring infrastructure-related grants, public-private partnerships, and tax credits to boost its revenue stream. In 2013, KU received a grant of $450,000 from the Kansas Department of Health and Environment to rebuild a deteriorated parking lot, turning it into a green demonstration project featuring pervious pavement, numerous shade trees, bioswales, a rain garden, and LED lighting.

Tax credits for the rehabilitation of buildings in two newly established historic districts on campus are expected to have contributed $500,000 to the 2014 revenue stream.

According to Graves, the historic rehabilitation tax credits earned from such projects are 25 percent of eligible costs. As a tax-exempt entity, KU does not recoup the costs until it sells the tax credits, typically at the rate of 90 cents on the dollar. The proceeds are then reinvested back into the districts for additional infrastructure improvements.  

While no single measure presents a silver-bullet solution to the university’s funding challenge, they all contribute to achieving the overarching goals.

“The strategic plan, like nothing else I’ve experienced in my career, strongly sets forth the will of the administration and aligns everyone to the mission. Change will happen no matter what we do, but if everyone is rowing in the same direction, it is much more productive than allowing random change to happen. We are looking into everything that works and finding ways to implement new ideas,” concludes Graves.

By Nicole Zaro Stahl

This report is based on a presentation Graves made at Tradeline’s 2014 Conference on Strategic Facilities Planning & Management.

 

For more information on the above report, please contact the Tradeline Editor

Project Data
Completion Date: 
April, 2015
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