Recovery and recharge were generally initiated as a methodology to recapture and recover costs incurred for “non-maintenance” minor remodeling in the 1980s. Today, many institutions use some method of cost recovery to finance both minor and sometimes significant construction, services to auxiliaries, research, and athletics, and for funding the facilities planning, design, and construction unit. As institutional physical plant departments evolved into professional management organizations, full recovery of administrative costs allows many universities to provide non-maintenance services without tapping into the maintenance and operation budget.
Cost Recovery and Recharge Principles
For this BOK chapter, the authors completed and published a CFaR research project (APPA’s Center for Facilities Research) that was based on a survey of educational facilities management staff. Three significant issues were identified:
- A debate as to whether or not all overhead should be included in the rate calculation;
- An emphasis on earning recharge impacted maintenance when not managed; and,
- A lack of institutional clarity as to the process and how it should function.
Nearly 78% of institutions had some form of chargeback. Examples included maintenance or repair work done for athletics, research, residence or dining organizations, and transportation and parking. Similarly, many universities have a fee-based structure to support construction on campus with construction teams charging a fee to help offset construction staff and equipment expenditures. How these chargebacks are defined and managed varies widely across universities. Forty-five percent of the respondent institutions did not focus their recharge or chargebacks only on elective work. For example, many institutions bill departments for preventive maintenance on departmental equipment such as autoclaves.
A widespread model is “full cost recovery.” Alternative models such as incremental cost recovery or “materials only” mechanisms can provide for easier adjustment to campus budgetary swings than a fully allocated model, but for most institutions, this would require either a reduction in staff, increases in facilities budgets, or both. Regardless, there is no standard approach.
There is an immense benefit to keeping the amount of recharge small as a percentage of the overall operating budget, because the primary business is, after all, maintenance and operation. If chargebacks must be large to meet budget, as is the case at many research institutions, sophisticated systems must be set in place to provide oversight and management.
Charges made against federal research grants should be through rates developed in accordance with Office of Management and Budget guidance documents. Keeping current with changes to the Uniform Guidance is critical, particularly to those institutions that support research through small remodels.
The cost model employed and whether or not to subsidize should be a conscious and informed decision by the chief financial officer and senior facilities officer, and extreme care must be taken to monitor and adjust the burden placed on the facilities budget to avoid neglecting the maintenance and other core functions.