Deferred maintenance is not cost saving

New schools are exciting they hold the promise of new ways of learning, new technologies and new equipment. There is reassurance in re-opening to a school that is clean, bright and healthy, and comfort in knowing that air is filtered and water is safe to drink. It is a statement of a school’s priorities, to provide a healthy and safe place in which to learn, whatever is happening in the outside world, and it requires planning to achieve.

What is deferred maintenance?

Delaying regular planned maintenance of buildings and machinery due to perceived budgetary constraints is deferring maintenance. During periods of economic stress we are all called upon to reduce costs. For schools facing funding cuts and enrolment reductions, facility maintenance costs may appear as low hanging fruit. If the chillers are working, why spend money on them? If the roof is not leaking, let’s delay that scheduled replacement we had budgeted?

The impact of deferring maintenance

According to the Building Owners and Managers Association, every $1 saved in deferred maintenance results in $4 of additional capital expenditure later. “Not doing preventive maintenance on systems shortens the life-cycle by as much as 1/3” (BOMA, 2000)

The financial impact can be calculated, the cost to the wellbeing of students and staff is not so easy to quantify. Delayed maintenance to air conditioning machinery reduces efficiency, reducing the number of air changes, reducing air quality. Less frequent filter changes increases particulate matter in the school. The impact may be seen in increased sick days and reduced attention in class.

Preventive Maintenance is all about controlling the performance of the building, not letting equipment and building fabric failures control the actions of the school.

Emergency work is expensive, in money, time and reputation. We need to understand the perceived savings of deferring maintenance against the costs and benefits of preventive maintenance and establish the means to budget for it.

Deferred maintenance costs have been calculated as compounding at a rate of 7% per annum. (CHT Healthcare, 2018)

Repair and Maintenance account for approximately 15% of total expenses. Preventive Maintenance accounts for between 30-50% of the Repair and Maintenance costs, or 4.5 - 7.5% of total expenses. How is that expense justified? (JLL, 2018)

The financial payback of preventive maintenance

In 2018, JLL facilities and engineering staff in the US undertook a study of the net present value (NPV) and return on investment (ROI) of an ‘industry benchmark’ level of preventive maintenance of building and equipment for a portfolio of properties for a telecommunications company. The results indicated that preventive maintenance over a 25 year period would generate a return on investment of 545% over the entire asset, with specific machinery items such as chillers and centrifugal pumps returning over 2x that amount. Even car parks, roofing and waterproofing return in the order of 250% ROI. Strong support for planned preventive maintenance. The study did not include the cost of potential down time caused by the failure of poorly maintained equipment which would add further support to the need for a structured preventive maintenance program.

The evidence against deferring maintenance to save money today is overwhelming, the short term financial savings are far outweighed by the long term costs. But how does a school, in uncertain economic times, budget for preventive maintenance?

Funding preventive maintenance in challenging times

School funding levels may be uncertain. That shouldn’t mean preventive maintenance or necessary capital upgrades are put on hold, alternative financing models can provide solutions during this period of low interest rates:

• Equipment Lease Purchase Agreements
• Operating Leases
• Financing Through an Agreement
  • Equipment is paid for through existing maintenance agreements
• Matching Payments
  • Specific to Energy Saving upgrades in which the equipment is effectively paid for through the savings made by the upgrade.

Preventive maintenance provides the school with more control over their equipment and buildings and their budgets. It’s good business practice.

For more information contact:

John Mortensen, Senior Director, Education +852 6791 4436, john.mortensen@ap.jll.com