Keeping school improvement program promises

Reduced budgets and escalating costs challenge school capital improvement program budgets; prioritize spending for best results advises program manager John Dougherty

When it comes to improving the learning environment for our children, public K-12 school districts across the U.S. typically face budget challenges. Shortages of skilled trade labor, and recent material cost increases are only a few of the issues taxing capital improvement programs (CIP) today. If a district with an ongoing CIP had a crystal ball when its capital plan was created years ago, all of its facility deficiencies would have been clearly identified, and all the work would have been priced using today’s dollars. Without that foresight, there may be some underestimates based on best-guess square-foot or unit-cost calculations. District personnel finding themselves in this dilemma may now be up at night wondering how they can keep all the promises made to their community in the referendum.

If the original scope and budgets were sound when they were created, a school district’s current challenges may come from a combination of inflation and the methodology used for the management of scope and budget. Fortunately, there is a path toward keeping the promises of a CIP, through good program management.

Challenges and opportunities

The first step is to understand the financial challenge. Budget shortfalls can be caused either by rising costs, underestimating project needs, or a combination of both. The reality is that either sufficient escalation is factored in to cover the rising costs, or it is not.  If not, more money must be borrowed or a rethink is required to establish project scopes moving forward.

The scope and budgeting process is, therefore, your challenge and opportunity – how you manage this in future projects determines your CIP’s ultimate success.  The process for most renovation and deferred maintenance projects should be one where the budget drives the scope. Using this approach, the highest-priority scope items are selected until the budget is fully committed. It is not unusual to have defined low-priority deficiencies remaining when projects are completed because there is simply not enough budget to do everything, everywhere.

For this reason, we call this approach ‘worst-first’ because it prioritizes the higher-cost/higher-complexity work first. The benefits include:

• Reducing the facility condition index – fastest
• Extending the useful life – longest
• Unifying the work under a single designer, contractor and permit.

The work that is deferred by this approach may be:

• Lower cost/lower complexity
• More easily incorporated at the end of the project by a change order
• More easily procured as a separate project
• More easily self-performed by district staff.

Unfortunately, the budget cannot drive the scope of new construction projects; these projects need the inverse driving relationship, one where the scope drives the budget. Imagine the reaction you would get trying to explain that a higher-than-expected land acquisition cost or inflation necessitates sacrificing heating or air conditioning, or a sports or arts venue in a new school. You would quickly, and rightly, be shown the ed-specs and told to find and fund a better solution. What can you do if faced with this challenge?  A clear-eyed review of your current ed-specs and space program is a good place to start. New approaches to learning and teaching have created opportunities to rethink traditional space programs.  New technologies have rendered some systems obsolete, but they may still be in your requirements.  Moreover, ‘green’ or lifecycle products once added to a project solely to achieve a certification have dropped in price and often offer rebates that offset the first cost entirely.

After you make all the possible cuts you may still find your program is falling short. Consider these steps:

• Transfer remaining project funds from completed or nearly completed projects back to the program contingency.
• Maximize all available revenue sources including State capital reimbursements and sales tax exemptions.
• Work with local utilities to identify all applicable rebate programs.
• Carefully review how you contract for services, eliminating redundancies.

If you are still short, it may be time to consider adjusting the expectations of your program.  Recall that on most renovation and deferred maintenance projects, the budget should be driving the scope.  If the original goal was to improve every existing facility to a certain facility condition index target, you might need to model an alternative target.  Using this approach delivers a meaningful level of improvement to the facilities while stretching your budget to the limit.

Proactive planning for the unknowns of the future

Could these challenges have been avoided in the first place?  Unfortunately, the answer is yes.

Many successful programs build in layers of protection to compensate for the unknown. One of the most effective tools is a revenue and escalation contingency that supplements the calculated escalation.  Set aside a portion of each monthly revenue receipt or a portion of the bond funds in a committed fund balance that requires the highest level of decision-making authority for distribution. Think of this money as your rainy day savings account to buffer any shortfalls in revenue or unanticipated market escalation.

Another approach is to bracket project scope with prioritized bid alternates, allowing a careful adjustment of the project scope as opposed to scope cuts masked as post-bid value engineering, which rarely brings the value that was possible through a deliberative process during the design stage.

Whether uncovering options to remedy shortfalls that have arisen from a lack of proper spending prioritization, or proactively planning for a long-term successful CIP, good program management is the key to success.