PlanningBack to basics
Balancing capital costs with life-cycle goals in a recession and beyond
By Joe Madda, AIA, LEED-AP
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Like many Americans today, health care leaders have adopted a "back to the basics" philosophy, opting to keep their dollars close and their core functions closer. They are rethinking old approaches and figuring out new ways to deliver healthcare efficiently and cost-effectively. However, it is important to define and prioritize terms to effectively "do more with less." When it comes to designing and building a new health care facility today, the following three core cost components must be carefully balanced: |
1. First costs
First costs are usually the highest priority for health care clients seeking to build new projects. Even in difficult financial times, however, it is worth remembering that ultimate life cycle and operational costs over 40 years or more will dwarf the capital costs of the initial construction period. First costs can be 10 percent or less of the total cost of health care facility ownership. Designing buildings that increase the productivity and well-being of users for the long haul is fiscally sound. The industry may be returning to the basics, but not without wisdom about the future.
During the last decade, capital cost escalation has motivated many health care owners to look at faster project execution. Responding to this concern, design and delivery models have effectively evolved. The rising popularity of integrated project delivery (IPD), which employs collaborative architecture/engineering/construction (AEC) cross-disciplinary teams by integrating a general contractor and subcontractors from project inception, is particularly promising since it fosters earlier decision-making, better-coordinated designs and a smoother construction process.
Over the past year, the economy has also shifted in unprecedented ways, creating a ripple effect in the construction industry. Inflation is swiftly moderating. Certain construction costs are declining. This "perfect storm" presents a unique buying opportunity for California health care owners with good financial reserves and capital, according to Chris Sterparn, senior associate in the Santa Monica, Calif. office of Davis Langdon, a firm that provides construction cost management services to architects and owners.
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| With a unified IPD team at the helm, the 106,000-square-foot Sutter Acute Rehabilitation Institute was completed for $62 million in November 2008—just ahead of schedule. |
"Health care costs in California have been driven by the regulatory environment, construction congestion, schedule impacts, and risk perceptions, significantly outpacing labor and material cost increases." says Sterparn. "However, the recent slowdown has brought a measurable cost-relief to this sector. There are fewer projects to choose from within the institutional construction sector generally, and this in turn is making health care projects attractive to contractors once again. Most recently, this has manifested itself in lower construction costs for health care projects. Given this changing environment, health care providers who already have their funding are finding that they are now able to buy more hospital or include attractive sustainability measures without adjusting their existing budgets."
Forward-thinking design firms have hit the reset button on their thinking in order to take advantage of these changes for their health care clients. In accordance with Lean product development concepts for processes and systems that maximize customer-defined value and minimize waste of materials, time, effort and cost, design possibilities can remain open until the last responsible moment, thus benefiting from deflationary market trends. Designers can also employ a theory to optimize money-related decision-making through a multi-step process that bases decisions on the importance of advantages. In addition, the increasingly popular IPD approach to delivering health care projects helps reduce costs. According to Stan Chiu, a Lean thought leader at HGA Architects and Engineers, IPD has been known to decrease the amount of space used by up to 30 percent, use up to 25 percent fewer natural resources and reduce construction times by up to 35 percent.
With a useful life spanning over decades or even a century, new hospital facilities will outlast current market conditions and economic cycles. The future can be unpredictable, but dynamic energy costs and skilled labor shortages are likely to be continuing concerns. Selection of highly robust building systems that combine longevity with flexibility of use is always wise. For example, post-occupancy discussions have indicated that the most problematic systems to maintain and operate are mechanical/plumbing systems, especially HVAC and electrical systems. Collectively, these components comprise more than a third of the first cost of a typical acute care facility. The concerns are always two-fold: are the systems built correctly and are they maintained properly? Well-informed systems specification and thoroughly facilitated transitions from facility construction to operation are effective ways for designers to answer these questions.
Marketplace vigilance is also vital. Consolidation in manufacturing industries worldwide has reduced the number of international manufacturers of common building equipment to handfuls of global giants, such as in-hospital elevators (five to seven firms per region) or large emergency generators (three firms). Naturally, the pressure to cut corners is immense.
Mark McDonald, director of cost management services for HGA in Minneapolis, Minn., notes that many building component manufacturers are now streamlining their processes as well as hiring a wider range of installers to compete better. "However, designers and owners need to be extra vigilant that they are getting what they specified and paid for in terms of product lines and installation practices," he says.
Some design decisions also have a much greater impact on first costs than others. When it comes to MEP systems, engineering experts offer several suggestions. George Lui, a principal and lead mechanical engineer at ME Engineers, Culver City, Calif., advises reducing the life cycle mechanical system costs by selecting high-quality and readily available equipment backed up by good local service, and performing fundamental commissioning of the building control systems to ensure the systems really work. Sean Hira, also a principal and lead electrical engineer at ME Engineers, recommends aggressively reducing lamp wattage with new technology such as LED lamps, and using higher voltage distribution systems, such as 4,160 or 12,000 volt instead of the typical 480 volt system. According to Hira, "higher voltage systems require smaller cabling, achieve lower utility rates and use less power."
2. Life-cycle costs
Unquestioningly, sustainability is a major concern for most health care systems. However, in tough times, health care planners may start to ask themselves: how "green" can my hospital afford to be? The answer depends on the commitment, time horizon and financial wherewithal of the healthcare owner.
Kaiser Permanente has made proactive strides in going green systemwide in the past few years. Other health care organizations have pursued sustainability on a hospital-by-hospital basis. While simple green practices are not costly, measures for higher levels of LEED certification can increase first costs by two to five percent, or more. Many owners will approve green features that cost more but have a relatively short payback period of less than five years. Longer payback periods are more difficult to justify in this economic climate.
Health care design firms are helping owners reuse more of the physical plant they already have. Users will live with some inconvenience in floor plan or ceiling height as long as basic needs are met: thermal comfort, good lighting and power, more storage and better circulation.
The handoff between construction and operations is also crucial to the success of many sustainable systems. Such systems rely on sophisticated technology, such as electronic building management systems. During the project closeout period, it is critical to provide good O&M documentation, to train the actual operators thoroughly and to secure reliable service contracts from reputable local providers.
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| The Sutter Fairfield medical office building was an early IPD implementation that tied the owner (Sutter Health), the architect (HGA), and the general contractor (Boldt Construction) into an interrelated contractual relationship. The final cost per square foot (excluding site work) was estimated to be around $60 less than similar projects in the region, according to the contractor. |
3. Operational costs
Beyond first costs and life cycle costs, the cost of patient care is ultimately the overriding issue in the health care industry. Over 75 percent of an operating budget may be allocated to staffing—more than energy, technology or other expenses. No wonder the built environment plays such a critical role in reducing operating costs! If staff satisfaction and productivity improve, the bottom line improves.
If institutions must remain in operation during a construction project, simplifying the phasing can minimize construction disruption of working conditions as user groups relocate gradually. For example, the current expansion of Clovis Community Medical Center in Clovis, Calif. breaks an otherwise large and complex expansion project into multiple phases. The first phase, estimated to be complete in February 2010, involves central plant plumbing upgrades, an expansion of the Outpatient Care Center and increased surface parking. The second phase includes the construction of a new 89,000 square-foot, four-story bed tower, two stories of 30,000 square feet of diagnostic and treatment expansion with a new helipad located on the roof and renovation of substantial space in the existing hospital. Though this phase is expected to start construction in April 2010, the hospital will remain fully operational through the construction process.
Likewise, it is important to motivate and empower people through the built environment. Some of the health care industry's most innovative designers now study the daily travel of various health care staff, such as nurses and medical technicians, in order to reduce work fatigue and improve patient interactions. From these studies, they can develop prototypical environments that radically streamline care-giving processes, which have reduced staff numbers and led to better patient care outcomes.
Balancing act
It takes courage to build a new facility in a troubled economic climate. Yet it also takes foresight to understand the delicate balancing act between the capital cost demands of the present, and the life cycle and operational needs of the future. With knowledgeable leadership, trusted advisors and innovative designers, there is no doubt that this balance can be achieved as the market transitions from recession to recovery.
Joe Madda, AIA, LEED-AP, is a principal and associate vice president for the Los Angeles office of HGA Architects and Engineers. He can be reached at jmadda@hga.com.
