High Performance Buildings

CONST RUCT ION INDUST RY INST IT UT E CII AUST RALIA

Fifth Annual Conference

Innovation in Construction

presents

HIGH PERFORMANCE BUILDINGS

Mr Mark Langdon General Manager, Strategic Development, AE Smith Pty. Ltd.

Abstract

In Australia over the past few decades, the cost of building services – as a percentage of total building costs – has increased steadily. The result has been more complex buildings which cost significantly more to own and operate. This paper investigates the potential for high-performance design of buildings to improve efficiency and save costs over the life of the building.

A slide presentation accompanies the paper (please refer to the original website).

Conference held at Stamford Plaza, Brisbane 11 October 2000 High Performance Buildings

Over the past few decades the share of total building costs accounted for by building services has increased steadily. This is due to the general increased use of air conditioning, security and communications systems, fire regulations and changes to the building codes. This has resulted in more complex buildings, which cost a great deal more to own and operate. Currently, in the average building, the cost of the services can represent up to 40% of the capital cost. As the structural costs of the buildings decrease, due to improvements in construction techniques and new materials, and the requirement for services increases, the future value of the services could represent up to 70% of the capital cost of the building.

Informed owners are looking for buildings, which provide a healthy, stimulating and more productive working environment for their staff. User or worker salary costs account for 75- 92% of total facility life costs and render other capital and operational costs almost insignificant. Studies show that a building design, which can improve worker productivity by as little as 1%, can offset a building's entire annual energy and maintenance costs and that high-performance office design can improve office efficiency by 30-40%.

A study by the NSW Department of Housing and Construction stated:

"Over the life of a typical office building for 50 years, studies have shown that 92% of the total cost is for employees housed in the building, 6% is for running costs and a mere 2% for the capital cost"

Building owners and occupiers are increasingly becoming aware of the effect of the actual physical work environment on worker performance and ultimately business performance and profit levels.

In fact, owners are increasingly seeing building services as the area with the greatest scope for adding value to their buildings. The quality of the services determines the life costs of operating the building and the return on the building is also largely determined by the quality of the services. The productivity and efficiency of personnel is greatly affected by their working environment and improvements in indoor air quality, lighting and layout yield a high return from health benefits and productivity gains.

Clients are seeking value driven, innovative, whole of life design solutions in order to lower ownership, occupancy and operating costs.

According to the Arthur Andersen Report “Facility Management in Australia – A Market Overview 1999”:

The provision of working environment for employees is a major expense for businesses and governments across Australia. Anecdotal evidence suggests that efficiency gain is the primary driver of working environment strategies in facility management. Whilst efficiency is very important to overall business performance, effectiveness is the route to improved productivity and creativity of employees when business process, work environment and employees are integrated effectively into the workplace. The practice of facility management and the effective delivery of facility management are the means to ensure the workplace is truly effective

For owners and occupants, the benefits of a whole of life approach are buildings that are cheaper in both initial capital and long-term running costs, provide a reasonably accurate forecast of the annual maintenance and energy costs, and facilitate maximum effectiveness for the activities housed within them and produce higher returns on investment. For example, in 1987 the ING Bank (formerly the NMB) of the Netherlands moved into its newly completed headquarters buildings in Amsterdam. The new buildings were unique in many ways and their success in a number of areas has provided a fine example of the ways Paper presented at the CII Australia Conference Brisbane 11 October 2000 in which multi-disciplinary project teams working towards an integrated design solution from the commencement of a project can produce a wide range of benefits for building owners and occupiers.

The bank's brief was simple and open-ended: it was to provide a facility, which would:

 integrate art, natural materials, sunlight, green plants, energy conservation, low noise levels and water  be functional, efficient and flexible  be human in scale  have low running costs

The buildings were designed by a team consisting of architects, construction engineer, landscape architect, energy expert (a physicist) and artists, as well as the bank's own project manager. All team members were involved from the project's inception, and all were free to comment on any aspect of the design. The results are exemplary: energy consumption is less than one-tenth of that of the bank's previous headquarters with attendant savings in running costs of around $US 2.4 million per annum, absenteeism was reduced by around 25%, and the bank's corporate image was enhanced to the extent that it moved from fourth to second ranking amongst Dutch banks. Careful integration of the building envelope, services and extensive daylighting has led to significant reductions in greenhouse emissions associated with the operation of the building.

Based on reduced running costs alone the payback period for the extra money spent on design and construction was only four months. The value of the buildings to the bank has been greatly increased because of the design approach adopted; employees voluntarily work longer hours, productivity is improved, business has increased, and the buildings will continue to serve the bank’s needs for many years to come.

Traditional procurement practices are increasingly being re-evaluated by proprietors the world over. The NSW Department of Health, the largest procurer of hospital facilities in Australia, falls into this category. Due to substantial capital and operational cost increases for their facilities during the 1980s, the Department was forced to review its project delivery systems (mostly prescriptive lump sum arrangements). A particular problem was quickly identified; capital and operational costs were controlled by a cost plan developed for each particular hospital. Each cost plan, however, was based on the costs of recently completed facilities. Thus, facility budgets were based on the excessive costs of recently completed facilities. This created a cost spiral effect as new designs were developed within excessive cost budget parameters.

Another major finding was that hospital staff salaries and other labour services accounted for over 70% of total life costs. Capital, maintenance, energy and other building operational costs were found to comprise only 12% of total life costs. The greatest scope for reducing costs lay in the actual functional operation of their facilities.

The Department decided to move to innovative performance-based contracts utilising an integrated “design, construct and maintain” team approach. Albury Hospital was chosen as the first facility to be procured using this approach. Focus was placed on outcomes rather than prescriptive requirements with the outcomes hinging largely on reducing recurrent costs, functionality, ease of use and buildability. A team approach utilising hospital administrators, health planners, architects, engineers, services consultants, contractors, cost experts and other key consultants was used to closely examine functional requirements. As staff costs easily comprised the greatest life cost element, the analysis centred on staff hours per patient.

The following were some of the main hospital design principles that the group found could significantly reduce operating costs and, hence, increase value:

 the use of the swing bed principle to allow the progressive temporary closure of beds during non peak periods without a reduction in optimum staff/patient ratios

3 Paper presented at the CII Australia Conference Brisbane 11 October 2000

 the reduction of travel time between facilities within the hospital by attention to the grouping or clustering of closely related clinical functions (i.e. clinical services grouped in functional clusters)  elimination of the belts and braces approach to engineering services including more efficient allowances for engineering facilities and ability to progressively shut down services when they are not required  a focused attention to buildability aspects of hospital construction including the application of commercial building techniques  the application of outsourcing for certain ‘back of house’ functions such as laundry  a realistic view on the standard of design and construction incorporated into hospital facilities – functional facilities not architectural monuments.

Other important changes resulting in reduced operating costs included design focus on total life costs rather than initial capital costs, changing engineering standards to emphasise performance during design life and a shift from high-rise to low-rise construction. All of these measures led to a substantial reduction in total hospital floor area which resulted in not only reduced operating costs but reduced initial capital costs; thereby debunking the myth that operational savings can only be achieved through increased capital costs.

The end result for Albury Hospital was a capital cost 40% below department forecasts, significant productivity increases and dramatically reduced recurrent costs. The delivery team is also responsible for the long term maintenance of the hospital; which provided an added incentive to properly address long term operational cost factors during the design process. The knowledge and expertise acquired is now utilised and is being further refined on further hospital procurement and refurbishment resulting in substantial on-going savings for the public hospital sector of NSW.

Research carried out by Geyer Design (an Australian architectural practice) on the top 4 Australian banks showed that revenue per employee is on an average over $160,000 per annum. This contracts dramatically with salaries and benefits at over $50,000 and occupancy costs at just under $10,000 per annum.

According to these figures, an incremental change in revenue of 1% can have an impact up to 3 times greater than a 1% change in staff cost or 16 times greater than a 1% change in occupancy cost. Calculated over a 10 year period (the typical life of an office fitout), total revenues generated from the facility will be more than 100 times the cost of fitting it out.

Revenue is by far the biggest opportunity and the biggest threat to business performance, followed by staff costs, then technology and equipment, followed lastly by occupancy costs.

It is clear that there are greater opportunities to improve organisational performance overall through revenue enhancement and productivity improvement rather than cost reduction. Therefore, the risk to revenues and staff productivity due to poor facility design and management is far greater than the expense of building or occupying space.

Many companies still view the provision, operation and maintenance of facilities from a technical and project base rather than from a business perspective. Facilities are often disregarded as a significant part of the overall corporate planning and decision making. They are merely treated as an operational function of the organisation, which focuses more on the management and maintenance of the physical property and services. They are not perceived as a resource that can be pro-actively manipulated in order to optimise its potential in the long term. Facilities may be seen only as a cost burden with the depreciating financial expression. Therefore, their management may tend to be organised reactively with no clear property policy objective. In this way, facilities often become a burden on future developments rather than an asset for unlocking the organisation’s potential.

Once organisations make the strategic connection and begin to proactively manage their facilities as positive factors of production and a catalyst for change, the economic benefits are considerable.

If approached in a positive, co-operative manner a holistic integrated design, construction and facilities management process can greatly reduce the problems associated with current building design and operation practice. Improved communication and closer collaboration among a greater number of project participants from the very beginning of the process promotes the creation of a shared vision for the project. Commonality of purpose and a sense of joint ownership of the total product will produce a more robust and unified design solution, with a range of measurable benefits - in short, better, more valuable buildings.

The notion of comparing costs over time as a basis for decision-making, rather than simply comparing initial or capital costs, is not new. In the construction industry, however, it has generally not received the attention, which it deserves. The basic concept is simple and the benefits to building owners are clear, yet the cost-effectiveness of reduced costs over time which can be gained by building owners are often ignored in favour of the more easily identified and assessed savings which appear to accrue from reduced capital expenditure.

This may occur in response to a number of factors, for example,

 when a building is constructed for sale or lease and the principal therefore passes on the burden of operating costs (and maintenance costs if the building is sold) to the buyer or tenant;

 when a project is for a public client such as a government department or agency and for reasons of accountability the best value for money outcome may be perceived as the one which provides “more building” in return for the public money invested in it, or where budgets are tightly controlled and based on annual appropriations thus making it impossible for extra funds to be provided initially even though the extra expenditure may produce greater savings in future years;

 when clients trading in a volatile marketplace deliberately base their business planning on short time horizons, e.g., only two or three years – this will often sharply reduce the savings which can be identified as many savings will not become apparent until such time as major refurbishment or maintenance is required, or until savings from reduced operating costs accumulate to a point where they outweigh the additional initial costs which actually produce those savings.

The relationship between life costs and value for money is obvious: a client may pay more initially for their building but over time that extra investment generates savings which continue to accrue over the building’s life. While there may appear to be limited scope for the implementation of life-cost planning during the pre-design phase, there can be a clear commitment to the life-cost approach to cost management before design starts. In addition, life-cost planning techniques can provide valuable assistance when assessing alternative design strategies during pre-design decision-making, e.g., when the design team and client are choosing between full air conditioning, mixed mode or natural ventilation systems.

At a more fundamental level it may be used when a client is trying to determine whether the construction of a new building is actually the most appropriate solution to their problem, or whether some other solution such as leasing a facility or even outsourcing the functions or activities which a new building would accommodate might be the most cost-effective solution in the longer term.

Higher performing buildings does not mean higher energy costs. In fact, research by the Rocky Mountain Institute in the USA and the US Department of Energy has revealed that sustained increases in productivity can be achieved through energy efficient design. This research indicates that the economic benefits of energy efficient design can be significantly greater than just the energy cost savings when the impact on productivity is also measured. So not only can energy efficient designs assist in reducing Australia’s commercial buildings power electricity consumption (currently up to 30% of the grid power) they will also reduce greenhouse gas emissions in line with the Kyoto Protocol as well as improving Australia’s GDP by improving the organisational performance of companies housed within these buildings.

References

“Building in Value: Pre-Design Issues” Edited by Rick Best & Gerard de Valence (1999) published by Arnold

“The Environmental Performance Of Commercial Buildings” Research Report by the Productivity Commission November 1999

“Facilities Management and the Business of Space” by Wes McGregor and Danny Shiem- Shin Then (1999) published by Arnold “Intelligent Buildings – A Guide for Facility Managers” by Carter Myers (1996) published by Upword

“Benchmarking Facilities” A Research Paper by Hsin Ying Yong (1999) published by University of New South Wales