Fiscal Review July 2013 Overview of two contracts between State of - PowerPoint PPT Presentation

Fiscal Review July 2013 Overview of two contracts between State of Tennessee, Department General Services and Jones Lang LaSalle Americas, Inc. 1. SBC Number 460/000-01-2011 2. CPO Agency Tracking Number 32101-00124 1

Real Estate in 2011 “Our job is to deliver the best possible service at the lowest possible cost .” - Governor Bill Haslam 2

Real Estate Portfolio Tennessee Real General Government Estate Portfolio Real Estate Portfolio 93.5 MSF 35.5 MSF Today’s focus is the FRF portfolio (Facilities Revolving Fund – general office buildings) FRF – Owned University 6.6 msf (19%) of General Remaining Tennessee Gov't Real General FRF – Leased 25 msf Estate Gov’t – 3 msf (8%) (27%) Owned 35.5 msf 24.4 msf Non-FRF – Leased (38%) (69%) 1.5 msf (4%) Tennessee Board of Regents 33 msf (35%) 3

Real Estate in 2011 4

Aged Portfolio • Estimated Asset Replacement Value of General Government 1,400,000 Buildings is $6.2 billion 1,200,000 • Average Age of Owned Portfolio 1,000,000 Square Footage is 35 years 800,000 600,000 • However, the oldest 43% of the 400,000 portfolio has an average age of 50 200,000 years 0 • Architecture and technology have Pre-1960 1960's 1970's 1980's 1990's 2000 and surpassed current portfolio Beyond Donnelly J. Hill Lowell Thomas State Office Building Chattanooga State Office Building Built 1968 Built 1977 Built 1955 5

Life Safety Issues Windows Falling Out of the James K. Polk Building April 17, 2011 – A glass window fell out of One of many windows where the glass and the building – the 11 th window to fall out. frame were separated by ½ inch or more. Wind speed was only 25mph and not the cause of this event or any other windows that fell. 6

Life Safety Issues May 31, 2011 - In the Andrew Jackson garage, a heavy chunk of concrete with rebar fell off the ceiling and nearly hit (and could have seriously injured) a State employee. 7

Space Inefficiencies Cluttered and under- utilized spaces were common throughout the FRF 9.6 million sf portfolio. 8

FRF Administration Inefficiencies Contract Administration • 479 different facility management contracts • 107 different Janitorial Contracts • 72 different Alarm System Contracts • 35 different Generator Maintenance Contracts Lease Administration • 381 Leases were administered by only two employees • Reactionary vs. Proactive management due to volume – leading to more than 100 holdovers and subpar quality spaces • Agencies moved out of State space for nicer leased space leaving State space under-utilized • Random pockets of vacant space within leased buildings 9

Assessment and Solution 10

Researching Best Practice The Department of General Services met with and spoke to numerous Industry Leaders including: Public Sector: States of Texas, Virginia and Indiana Private Sector: AT&T, Nissan, Mars, Motorola and Proctor & Gamble 11

Industry Assessment Why is the private sector outsourcing real estate services? “Nissan focuses on the core business of making cars and relies on experts for real estate services.” How can the State of Tennessee best manage its real estate assets? Recommendation – The State should procure an industry expert to provide comprehensive, integrated real estate management services. 12

Research Tennessee Leads the Nation Forward Tennessee is the first state to outsource comprehensive real estate services. Eight (8) states looking to follow Tennessee's lead include: Oklahoma, Georgia, North Dakota, California, Hawaii, Florida, Arizona and Washington . What Other States Are Doing • Six (6) states have active or recent solicitations for Master Planning and Additional Services (including brokerage services) • State of New York has RFP for Facility Assessments, Master Planning, and Additional Services (including brokerage services) • Eight (8) states already use service providers for brokerage services • Twelve (12) states do SOME outsourcing but not comprehensively 13

Procurement of the Initial Contract Comprehensive outsourcing of real estate services was NEW TERRITORY for a governmental entity like the State of Tennessee. RFP development began in May 2011 as a joint effort between multiple departments and agencies. The RFP was released for bid on October 19, 2011. RFP Scope was for Comprehensive Real Estate Services including: • Facilities Assessments • Master Planning • Leasing • Facility Management • Project Management 14

RFP Respondents Six (6) Proposals Received by Three (3) Respondents Qualified: November 9, 2011: • CB Richard Ellis • Tetra Tech • Cassidy Turley • Jones Lang LaSalle • CB Richard Ellis • Colliers International • Jones Lang LaSalle • Tetra Tech • Johnson Controls Respondents had to reach a technical score threshold to qualify. 15

Initial Contract Contract Awarded to Jones Lang LaSalle on December 6, 2011 Services began on January 23, 2012 Funding Available at Beginning of the Contract: • Only $1 Million in appropriated funding initially available • Amendments to the original contract were executed as additional funding became appropriated and available. 16

Initial Work Performed Initial Work Performed March 2012 through June 2012 Limited by the initial $1 million in funding, only certain work in the contract was authorized including: GENERAL GOVERNMENT • Facilities Condition Assessments on the REAL ESTATE PORTFOLIO largest 33 of 159 buildings representing 35.5 msf 5.5 million square feet (57% of FRF). FRF – Owned • Master Planning involved a space and Leased utilization housing plan, space 9.6 msf ownership plan, and a project prioritization plan on the same 5.5 million square feet. • Leasing Services Remaining General Gov’t - Owned and Leased 25.9 msf 17

Initial Findings – Facilities Management • Overstaffed but underperforming • High operating costs • Poor maintenance practices (Run to Fail) • Dangerous working conditions • Lack of training programs • Little documentation on systems and buildings • Little industry best practice • No plan to improve 18

Initial Findings – Operational Benchmarking FY 11 Spend Analysis for TN 30,000,000 25,000,000 Savings $6,065,081 Potential : 20,000,000 $ 18.8 M per year Total Spend $94 M over 5 years 15,000,000 on Pass through Expenses $5,317,631 10,000,000 $995,594 5,000,000 $260,890 $5,991,757 $191,543 - Cleaning GB R&M Grounds Admin Utilities Security Industry Standard Benchmark Potential Savings “Pass through” expenses are all costs, expenses, charges and allocations of contractor in connection with the Services in accordance with the Approved Budget. There is no mark-up on pass-through expenses. All above are pass through except Utilities. 19

Initial Findings – Risk Management Exposed electrical panel increases the risk of Fire extinguisher was last serviced in 2009, electrocution violating fire codes and indicating a high risk of failure 20

Initial Findings – Risk Management Storage room is cluttered and has an oil spill near the Main electrical switch gear is drain, increasing risk of environmental pollution and next to a urinal, creating a life/safety issue and plumbing and/or electrical system failure increased risk of electrocution and/or fire 21

Initial Findings – Risk Management Andrew Jackson: Improper duct penetration, causing contaminated air 22

Initial Findings – Risk Management James K. Polk: Exposed high voltage electrical panel creates a life/safety issue 23

Initial Findings – Risk Management James K. Polk: Machine does not have a protective guard or insulation, violating OSHA guidelines and creating a dangerous environment 24

Initial Findings – Risk Management Exposed high voltage electrical wiring is in violation of code and is major life/safety issue 25

Initial Findings – Risk Management Tennessee Regulatory Authority: Air damper does not open and close properly and has been propped open with a 2X4 26

Initial Findings – Risk Management TPS Complex: Air dampers are being held open with zip ties due to lack of preventative maintenance 27

Initial Findings – Risk Management Tennessee Regulatory Authority: Improper storage of chemicals and inadequate spill containment creates risk of poison and fire 28

Initial Findings – Risk Management Tennessee Tower: Pipes are not insulated, allowing for corrosion over time, and resulting in wasted energy 29

Initial Findings – Risk Management Tennessee Tower: Loose belts on fans create a serious life/safety issue 30

Initial Findings – Risk Management TPS Complex: Fuel leak represents a fire hazard and environmental concern 31

Initial Findings – Risk Management TPS Complex: Fuel filter is 10 years past its expected life expectancy creating a fire and life/safety hazard 32

Initial Findings – Risk Management TPS Complex: Corrosion of battery cable terminal increases the risk that the emergency generator may fail 33

Initial Findings – Risk Management TPS Complex: Lack of fall protection represents a serious safety hazard 34