University of Texas System

UT System Administration Policy Library -- Policy UTS168

CAPITAL EXPENDITURE POLICY

Responsible Officer: Executive Vice Chancellor for Business Affairs
Sponsoring Office: Office of Business Affairs
Effective Date: July 1, 2008
Last Reviewed: August 22, 2008
Next Scheduled Review: May 14, 2012
Errors or changes to: policyoffice@utsystem.edu

Exempted from Standard Policy Development Process By: Vice Chancellor Tonya Brown

Date: April 28, 2008

Policy Statement
Rationale
Scope
Website Address for This Policy
Related Policies, Requirements or Standards
Contacts
Definitions
Procedures

Responsibilities

Forms and Tools/Online Processes

Appendix

POLICY STATEMENT

The U. T. System requires that all institutions shall provide in-depth analysis of all capital expenditures and all System Administration offices shall work collaboratively to provide assistance to the institutions in their endeavor to appropriately analyze Projects.

The purpose of the Capital Expenditure Policy is two-fold: (1) provide the institutions guidance in the capital expenditure process, from Project approval to Project closure; and (2) provide System Administration a uniform method for documenting the full capital expenditure lifecycle so that capital expenditure activity can be effectively communicated to the BOR.

Compliance with this Policy requires compliance with the Project Lifecycle Process and accompanying guidelines, as set out in the Procedures section of this Policy.

RATIONALE

Projects are an integral aspect of U. T. System’s overall strategic growth. As the System continues to grow, the need for a uniform, System-wide Capital Expenditure Policy compatible with state reporting requirements is apparent.

All U. T. System institutions are currently required to complete on an annual basis the Master Plan 1 (MP1), a reporting tool required by the THECB and Bond Review Board (BRB). The MP1 is a Project plan summarizing facilities-related projects for the succeeding six years, including land acquisitions. The MP1 reporting thresholds, per Texas Education Code, Section 61.058, are:

New construction projects in excess of $1,000,000
Repair and rehabilitation projects in excess of $2,000,000

Similarly, all U. T. System institutions have been historically required to update on a biennial basis the Capital Improvement Program (CIP), a reporting tool maintained by U. T. System OFPC. The CIP is a Project plan summarizing facilities-related Projects for the succeeding six years, excluding land acquisitions and excluding Repair & Rehabilitation Projects funded with PUF Debt via the Library Equipment Repair & Rehabilitation (LERR) program. Historically, the CIP has been formally updated and adopted by the BOR every two years; however, in practice the document is updated frequently throughout the year via off-cycle revisions approved at quarterly BOR meetings. The CIP reporting thresholds are $1 million for new construction and $2 million for repair and rehabilitation, unless the Project is funded in any part with debt, in which case the Project is reported in the CIP regardless of thresholds; however, the CIP has not historically included Projects funded via the LERR program, even though by definition LERR Projects are funded with debt. Although the rules for inclusion vary slightly from the MP1 to the CIP, the required Project types and financing information is largely identical.

Because the requirements of the MP1 and the CIP are similar, and because the biennial nature of CIP updates has evolved into a continual process, this Policy modifies the CIP in such a way that its scope and processes are more reflective of actual practices at U. T. System and better aligned with state reporting requirements. This Policy also modifies the CIP in such a way that it provides a comprehensive view of all debt-funded capital expenditure activity at System. Primary modifications to the CIP set out by this Policy include broadening of CIP scope to include Repair & Rehabilitation Projects funded with PUF Debt via the LERR program, regardless of amount; implementation of formal Gift funding procedures; replacement of the biennial CIP adoption with an annual CIP status report; and elimination of the Capital Budget portion of the CIP.

A uniform Capital Expenditure Policy will allow System Administration to better serve the institutions by reducing duplicative reporting requirements at State and System levels, standardizing the approval process for all Project types under all financing programs, and providing the institutions a higher level of ownership and control in the Project approval process. Additionally, a uniform Capital Expenditure Policy will allow System Administration to better serve the Board of Regents by generating streamlined documentation that holistically presents capital expenditure activity in context of U. T. System’s overall strategic direction.

SCOPE

All institutions and U.T. System Administration.

WEBSITE ADDRESS FOR THIS POLICY

http://www.utsystem.edu/policy/policies/uts168.html

RELATED STATUTES, POLICIES, REQUIREMENTS OR STANDARDS

UT System Administration Policies & Standards

Other Policies & Standards

CONTACTS

If you have any questions about UT System Administration Policy UTS 168 Capital Expenditure Policy, contact the following office(s):

Office

Telephone

Email/URL

OFPC

512-499-4600

http://www.utsystem.edu/fpc

Office of Finance

512-499-4374

http://www.utsystem.edu/fin

DEFINITIONS

Accuracy Factor: Degree to which a cost estimate is expected to err from the final cost schedule. The Accuracy Factor is expected to be 1.60 or better for Conceptual Estimates and 1.10 or better for Control Estimates. For example, a Conceptual Estimate of $100 is not expected to err beyond a minimum of $62.50 and a maximum $160, and a Control Estimate of $100 is not expected to err beyond a minimum of $91 and a maximum of $110.

Agenda Database: Web-based tool by which the Board Office organizes all agenda items that go before the BOR for approval.

Auxiliary Enterprises Balances: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of balances that have accumulated from the collection of revenues or fees for such enterprises as student housing, student unions, parking facilities, and recreational facilities.

Available University Fund (AUF): Defined by the Texas Constitution to consist of distributions from the “total return” on all investment assets of the Permanent University Fund, including the net income attributable to the surface of Permanent University Fund lands. Two-thirds of the AUF is constitutionally appropriated to U. T. System. The remaining one-third is constitutionally appropriated to The Texas A&M University System. Also a type of Institutional Funds under the broader umbrella of Funding Sources.

Bond Review Board (BRB): The BRB’s mission is to “ensure that debt financing is used prudently to meet Texas' infrastructure needs and other public purposes and to support and enhance the debt issuance and debt management functions of state and local entities.” All debt issued by the State or its agencies for New Construction Projects greater than $250,000 must be approved by the BRB. The BRB also reviews the annual MP1 in conjunction with its annual Project Report.

Board of Regents (BOR): The University of Texas System Board of Regents. The BOR meets quarterly in the second week of February, May, August, and November. BOR approval is required for any Project, as defined by this Policy.

Capital Improvement Program (CIP): System-generated report that details the U. T. System’s long-range plan to preserve and enhance facility assets. The CIP is a six-year projection of major Repair and Rehabilitation and New Construction Projects to be implemented and funded from institutional and System-wide revenue sources.

Cash Requisition Form: OFPC document used to request reimbursements for debt funded Projects.

Conceptual Estimate: Preliminary cost estimate used to establish budget for proposed Project. The Conceptual Estimate (in conjunction with the Control Estimate) generally will serve as a basis for the Total Project Cost (TPC).

Confidence Factor: Degree to which Project Management believes Accuracy Factor will be free from revision. A Confidence Factor of at least 80% is considered satisfactory.

Control Estimate: Cost estimate established during design development and used to manage Projects. It is often developed jointly by OFPC Project Management and external parties such as design professionals and construction firms. The Control Estimate (in conjunction with the Conceptual Estimate) generally will serve as a basis for the Total Project Cost (TPC).

Conceptual Schedule: Preliminary schedule dates used to establish proposed milestones for the Project.

Control Schedule: Construction schedule established during design development and used to manage Projects. It is often developed jointly by OFPC Project Management and external parties such as design professionals and construction firms.

DD Approval: Design/Development approval, as typically granted by the U. T. System Board of Regents. For New Construction Projects (or Repair & Rehabilitation Projects that are architecturally or historically significant), DD Approval is granted by the BOR. For Repair & Rehabilitation Projects that are not architecturally or historically significant, DD Approval is granted by the Chancellor, unless the Project is Institutionally Managed, in which case DD Approval is granted by the institution President. In all cases, DD Approval occurs subsequently to the BOR meeting at which the Project was added to the CIP. For New Construction Projects, DD Approval and the appropriation and authorization of funds typically occur simultaneously at a BOR meeting; however, for Repair & Rehabilitation Projects, DD Approval occurs outside the purview of a BOR meeting, and after the appropriation and authorization of funds.

Debt Capacity Ratios: Three key financial ratios calculated by the Office of Finance: Debt Service Coverage (DSC), Debt Service-to-Operations, and Expendable Resource-to-Debt. All three ratios are generally calculated based on the institution’s updated six-year forecast, with the exception of DSC, which can be calculated based on the Project-specific pro forma if the Project is revenue-generating (e.g., student housing, parking). In order to receive debt capacity approval, the institution must generally meet two out of three minimum standards, as established by the Office of Finance, or the Project itself must meet a minimum DSC standard. The minimum DSC standard is typically less stringent for revenue-generating Projects than for non-revenue-generating Projects. In order to reflect industry changes and maintain peer group comparability, the Office of Finance reviews and adjusts (if necessary) its minimum standards on an annual basis.

Debt Service Coverage (DSC): Debt Capacity Ratio that measures actual margin of protection for annual debt service payments from annual operations. DSC is calculated by taking the sum of annual operating surplus (or deficit), plus depreciation expense, plus interest expense, divided by total of principal and interest payments. It is reflected as a times (x) coverage.

Debt Service-to-Operations: Debt Capacity Ratio that measures peak debt service burden on the annual operating budget. It is calculated by taking peak annual debt service divided by total operating expenses. It is reflected as a percentage.

Delivery Dates: Major dates in a Project’s lifecycle, including: (1) CIP Approval, (2) Start of Programming, (3) Appropriation/Authorization/DD Approval, (4) THECB Approval, (5) Notice to Proceed, (6) Substantial Completion, (7) Operational Occupancy, and (8) Project Close-Out. Items (1) through (5) are included in the Project Approval Phase; items (6) through (8) are included in the Project Completion Phase. Item (8) Project Close-Out is the only Delivery Date that is not required on the PPF.

Designated Funds: See Designated Tuition.

Designated Tuition: Also known as Designated Funds. Under the broader umbrella of Funding Sources, a type of Institutional Funds formerly known as the General Use Fee. Institutions may collect a fee per semester credit hour equal to the mandated tuition rate for the general use of the institution.

Discretionary Funding: Any Funding Source available to support a Project that is under the control of the institution and not subject to spending policies imposed by the institution itself, the Board of Regents, or any other authoritative body. Priority for the use of Discretionary Funding should be given to maintenance of existing facilities, prevention of deterioration, and addressing life-safety issues.

Enabling Legislation: Any type of legislative authority at the Federal, State, or institutional level required to impose a fee or enact any other method(s) of producing revenues necessary to support the Project.

Energy Conservation Financing: See Performance Contracts.

Expendable Resources-to-Debt: Debt Capacity Ratio that measures coverage of direct debt by financial resources that are ultimately expendable. It is calculated by taking expendable financial resources divided by debt outstanding. It is reflected as a percentage.

Form 2: Also known as an Accounting Source Document (ASD). Form 2s are the authorizing documents used to record Project funding, appropriations, changes to appropriations, movement of funds and expenditures, encumbrances, and in certain cases expenditures and other miscellaneous debits and credits. Upon a Project’s addition to the CIP, a Form 2 will be generated to record Temporary Funding, to set up the OFPC management fee, and to move funds to different sub-accounts to cover initial expenditures. When the Project receives THECB approval, new sub-accounts will be set up to record Project funding. Temporary Funding will be removed, and full funding for the Project will be set up. NOTE: With the implementation of OFPC’s new project management system, OPUS, this may not be referred to as a “Form 2” any longer, or even needed.

Form 4/5: Also referred to as Construction Project Completion Report. Form 4/5s are initiated by OFPC upon Final Completion when no more expenses will be recorded against the Project. The institution’s assumption of liability from the contractor occurs at Substantial Completion. NOTE: With the implementation of OFPC’s new project management system, OPUS, this may not be referred to as a “Form 4/5” any longer, or even needed.

Funding Source: Type of funds identified in the PPF to support the financing of a Project. Includes PUF Debt proceeds, RFS Debt proceeds, TRB Debt proceeds, and Institutional Funds. Although Funding Sources are selected at the time the Project is approved and added to the CIP, Funding Source amounts can be changed with BOR or Chancellor approval (as applicable) at a later date. This does not necessarily constitute the need for THECB reapproval unless TPC has changed by more than 10% or there has been a Funding Source Change. The Office of Finance has established a priority of Funding Source expenditure in order to allow institutions to earn as much income on debt proceeds as possible prior to expending the proceeds. The preferred expenditure order is: (1) TRB debt proceeds, (2) PUF Debt proceeds, (3) Income on PUF Debt proceeds, (4) RFS Debt proceeds, (5) Institutional Funds.

Funding Source Change: The addition or deletion of any Funding Source(s). A change in TPC is not necessary to constitute a Funding Source Change. Typically will require reapproval by THECB if a new Funding Source is added, or an approved Funding Source is removed.

Funding Source Table: The summary of Funding Sources and funding amounts established in the PPF.

Futures List: A section of the CIP comprised of Projects for which institutions have identified a need and an estimated Total Project Cost, but which do not have a specific Funding Sources identified to be used in financing the Project. There is no PPF required for inclusion on the Futures List.

General Revenue: Under the broader umbrella of Funding Sources, a type of Institutional Funds available for Projects if two-thirds of the Texas Legislature votes in favor of it and records the vote. These funds are generated by the general taxing authority of the state.

Gifts: Under the broader umbrella of Funding Sources, a type of Institutional Funds that may be restricted as to use or unrestricted, depending on the donor’s specifications. Per the Project Policy, Gifts cited as a Funding Source will generally be deemed RFS Debt for purposes of Debt Capacity Ratio analysis until the gifts are in-hand.

Grants: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of Federal, State, Local, and/or Private awards used for purposes specified in the associated agreements.

Higher Education Fund (HEF): Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of funds authorized by Article VII, Section 17 of the Texas State Constitution. U. T. Pan American and U. T. Brownsville are the only HEF-eligible U. T. System institutions.

Hospital Revenues: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of revenues generated by hospitals and clinics at U. T. Medical Branch – Galveston, U. T. Health Science Center – Houston, U. T. M. D. Anderson Cancer Center, and U. T. Health Science Center – Tyler.

Institutional Funds: Refers to any type of non-debt Funding Source, including Auxiliary Enterprises Balances, AUF, Designated Funds, Energy conservation Financing, Gifts, Grants, Higher Education Fund (HEF), Hospital Revenues, Insurance Claims, Interest on Local Funds, Medical Services Research and Development Plan (MSRDP), Dental Practice Plan (DPP), Allied Health Practice Plan (AHPP), Professional Fees, Parking Fee Balances, Private Developer, Student Union Fee, Unexpended Plant Fund, and Utility Revenues.

Institutionally Managed: A Project that is managed by institutional personnel rather than OFPC. A Project is automatically designated as Institutionally Managed (and not included in the CIP, unless it is funded in any part with debt) if it is a New Construction Project under $1 million or a Repair & Rehabilitation Project under $2 million; however, OFPC will manage such Projects if requested to do so. Projects that exceed these thresholds are managed by OFPC unless designated Institutionally Managed by the BOR. Although OFPC does not manage Institutionally Managed Projects, it could still be involved in the Project because OFPC records appropriations and expenditures of debt proceeds on behalf of the BOR.

Insurance Claims: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of funds collected against claims made on insurance policies.

Interest on Local Funds: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of interest income earned on funds held in local depositories.

Investment Metrics: Benchmarks laid out by the institution that measure the success of a Project in its aim to fulfill an institutional need or achieve some aspect of the mission or strategic plan of the institution. Typically, Investment Metrics will be predefined for most New Construction Project categories, however, if a Project does not fit easily into any specific Project category (e.g., student housing, parking, classroom, etc.), then the institution may petition via the PPF to utilize an Investment Metric of its choosing and description.

Library, Equipment, Repair and Rehabilitation (LERR): Generally refers to library and equipment materials, Faculty STARS, or small Repair & Rehabilitation Projects that are approved annually through the LERR Budget or Annual Operating Budget, and funded with PUF Debt proceeds.

Major Project: Any Project that meets one or more of the following criteria: (1) new building construction with a value of more than $1 million, (2) road, paving, and Repair & Rehabilitation Projects with a value of more than $2 million, (3) any Project determined by the Board to be architecturally or historically significant, (4) any Project that is debt financed (RFS, TRB, PUF) regardless of dollar value, and/or (5) any campus planning effort that is intended to result in a capital Project meeting one or more of these criteria.

Master Plan 1 (MP1): A facilities-development plan that summarizes planned New Construction Projects, Repair & Rehabilitation Projects, and Land Acquisitions as reported by institutions for the next six years. The MP1 satisfies the Project reporting requirements for both the THECB and the BRB, and it is submitted annually by the institutions. It does not include routine maintenance projects, but it does include all of the other types of projects that are placed on the THECB agenda for consideration.

Medical Services Research and Development Plan (MSRDP): Also known as Professional Fees. Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of funds derived from physician fees for services to patients.

New Construction: A Project that will result in the addition of gross square footage that was not previously in inventory.

Office of Facilities, Planning & Construction (OFPC): U. T. System Administration office that maintains the CIP, manages Projects, and records Project accounting transactions.

Parking Fee Balances: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of fees collected for parking permits, citations, and transient parking.

Performance Contracts: Also known as Energy Conservation Financing. Under the broader umbrella of Funding Sources, a type of Institutional Funds based on a contract with a third party pursuant to Section 51.927 of the Texas Education Code to provide energy conservation measures that will generate a guaranteed level of energy savings. Debt may be issued under the Revenue Financing System for a maximum 10-year period if energy savings can be generated for the period.

Permanent University Fund: A constitutional fund and public endowment created in the Texas Constitution of 1876. It was established through the appropriation of land grants previously given to The University of Texas at Austin plus one million acres. The land grants to the PUF were completed in 1883 with the contribution of another one million acres. Today, the PUF contains 2,109,190 acres located in 24 North and West Texas counties. The assets and earnings of the PUF are dedicated to the uses and purposes of the U. T. System and the Texas A&M System.

Permanent University Fund Debt (PUF Debt): Bonds and/or flexible rate notes authorized by Article VII, Section 18 of the Texas State Constitution. The debt is repaid by distributions from the Permanent University Fund to the Available University Fund. All U. T. System institutions except U. T. Pan American and U. T. Brownsville are eligible to receive PUF Debt proceeds.

President’s Letter: Letter signed by institutional President, as well as appropriate EVC, formally requesting that a project be placed on the agenda for a BOR meeting. According to Regents’ Rule 80301, Capital Improvement Program, “For Major Projects seeking Board action, the institutional President may submit a request for inclusion on the Board of Regents’ agenda, accompanied by a Project Planning Form.” The President’s Letter is submitted at the same time as the PPF. PPFs submitted without the President’s Letter are considered incomplete and will not be accepted.

Private Developer: Under the broader umbrella of Funding Sources, a type of Institutional Funds based on an agreement with a third party that constructs and finances capital improvements on land of the U. T. System. The System executes a ground lease with the Private Developer and typically, at the end of the lease term, the capital improvement reverts to the U. T. System.

Professional Fees: See Medical Services Research and Development Plan.

Project: For purposes of this Policy, any New Construction Project greater than or equal to $1 million requesting addition to the CIP, any Repair & Rehabilitation Project greater than or equal to $2 million (including roads and paving), and/or any Project funded in any part with debt proceeds, regardless of amount. Preventive and routine maintenance and equipment replacement and upgrades (including computers) are not considered Projects for purposes of this Policy.

Project Lifecycle: The sequence of events from start to finish that all U. T. System Projects are required to undergo. The Project Lifecycle is characterized by two main phases, the Approval Phase and the Completion Phase.

Project Management: The application of resources, management techniques, and systems to the execution of a Project from start to finish. The goal of Project Management is to achieve a predetermined set of objectives for scope, quality, time, and cost, to the equal satisfaction of those involved, i.e., OFPC Project Management, institutional staff, design professionals, and/or construction firms.

Project Planning Form (PPF): A uniform, web-based data collection system designed to gather a complete set of data points pertinent to a specific Project. A complete, current PPF is required to be submitted by the Institution anytime a Project is going before the BOR, including cases of a Project returning to the BOR for additional approvals. The PPF is accompanied by: (1) President’s Letter signed by the institution President and the Academic or Health Affairs EVC, and (2) any required exhibits or attachments such as a Project pro forma. The permanent web location of the PPF System is: https://www.utsystem.edu/PPFSystem. NOTE: The PPF may also be used outside the Project Approval Phase to update important Project information such as TPC increases of less than 10%, changes in expected delivery dates, changes in projected expenditures, etc. These Project details will be updated in the CIP at least quarterly by the Senior Project Manager (SPM) or by the Institution if the Project is Institutionally Managed.

Repair & Rehabilitation (Repair & Rehab): Also known as Repair and Renovation, or R&R. A Project in which a portion of the building is renovated. The classic Repair & Rehabilitation Project involves gutting an existing building and replacing electrical, plumbing, heating, ventilation, air-conditioning systems and/or other major components. Road and paving Projects, as well as tenant finish-out Projects, are also considered R&R for purposes of this Policy.

Revenue Financing System (RFS): Debt program established in 1991 for the purpose of providing a cost-effective debt program to institutions of the U. T. System and to maximize the financing options available to the BOR. The guiding principle underlying the administration of the RFS is that allocations of RFS Debt proceeds for capital improvements shall be contingent upon a BOR determination that the institution can satisfy its proportionate share of the outstanding RFS Debt. All capital improvement Projects proposed to be funded in part or in whole with RFS Debt proceeds must receive a recommendation from the Office of Finance.

Revenue Financing System Debt (RFS Debt): Bonds and/or commercial paper issued as parity debt by the BOR under the Revenue Financing System debt program.

Student Fee: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of fees collected to support the operations and financing of a student union or other type of student activity center. Authorization of the fee by the student body is frequently one piece of Enabling Legislation for Student Fee-supported Projects.

Temporary Funding: OFPC is empowered by the BOR to authorize funding in the amount of 5% of the Preliminary Project Cost (or up to 10% with explicit EVC of Business Affairs approval) for Projects approved in the CIP. Temporary Funding is typically used to cover expenditures such as programming, advertising costs, initial design costs, and other expenditures that are incurred at the beginning of a Project. In the case of debt-funded Projects, the institution funds these costs initially and will be reimbursed from debt proceeds after THECB approval. In the case of non-debt-funded Projects, the institution may fund these costs but may not expend more than the approved Temporary Funding amount until after THECB approval.

Texas Higher Education Coordinating Board (THECB): Also known as the Coordinating Board, the THECB meets quarterly in the third week of January, April, July, and October. THECB approval is required for any New Construction Project with a value of more than $1 million and any Repair & Rehabilitation Project with a value of more than $2 million. Projects must obtain reapproval from THECB if the Project experiences a TPC or gross square footage change of more than 10%, if there is a Funding Source Change, or if the institution has not contracted for the Project within 18 months from final BOR approval date. The THECB also reviews and approves the annual MP1.

Total Project Cost (TPC): Refers to the amount approved by the Board of Regents at time of addition to the Capital Improvement Program. The TPC is subsequently approved and authorized by the Board of Regents upon completion of Design Development. The TPC provides for the design, construction, and miscellaneous costs associated with constructing a capital improvement Project, including Temporary Funding in the amount of 5% of TPC (or up to 10% with explicit EVC of Business Affairs approval). The Conceptual Estimate and Control Estimate generally will serve as the bases for the TPC.

Tuition Revenue Bond Debt (TRB Debt): Bonds and/or commercial paper authorized by the Texas Legislature. TRB Debt is issued by the BOR under the Revenue Financing System debt program. Debt service on TRB Debt has historically been reimbursed by the State, although the State is not legally obligated to do so. Every two years, U. T. System requests an appropriation for debt service on TRB Debt for projects that were approved during previous Legislative sessions. Despite the name, TRB Debt is not necessarily repaid from tuition collected at the institutions.

Unexpended Plant Funds: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of funds that have been deposited from various other Funding Sources and have been earmarked for construction or physical plant improvements.

Utility Revenues: Under the broader umbrella of Funding Sources, a type of Institutional Funds comprised of interdepartmental transfers to the utility department for electricity, natural gas, chilled water, steam, water, and sewer charges.

RESPONSIBILITIES

Institutional President.

The Institutional President is responsible for developing and signing off on PPFs that are in line with the institution’s Campus Master Plan.

Offices of Academic Affairs and Health Affairs.

Academic Affairs and Health Affairs are responsible for assisting institutions in developing PPFs.

Office of Facilities, Planning & Construction.

OFPC is responsible for reviewing construction PPFs, preparing agenda items, updating the CIP regularly, assisting institutions in estimating project costs and expenditure timelines, managing projects, controlling project accounting, and closing out projects.

Office of Finance.

The Office of Finance is responsible for reviewing PPFs if the Project includes any debt or gift funding, assisting institutions in building pro formas or updating six-year forecasts, providing finding of fact language for agenda items, and managing IRS arbitrage spendout compliance.

Office of External Relations.

In the case of interim gift financing and fundraising shortfalls, this office is responsible for assisting the institution in re-presenting the project to the BOR for reauthorization and/or approval of a Funding Source Change.

Office of the Controller.

The Office of the Controller organizes and manages the request-for-LERR process.

PROCEDURES

Project Lifecycle. There are two main phases in every Project’s Lifecycle: Approval Phase and Completion Phase. Compliance with this Policy requires compliance with the various stages of the Project Lifecycle:

(click here for printable flowchart)

uts 168 chart

Guidelines. The Project Planning Form (PPF) submitted by the institution initiates the Project Lifecycle, and it is the primary vehicle through which the Approval Phase is achieved. It also serves as the “Individual Project Summary” page in the CIP, and is updated (or confirmed) at least quarterly by OFPC Senior Project Managers to reflect changes to the Project as they occur. Hence, institutions are required to submit a fresh PPF for all BOR agenda items pertaining to a Major Project, including:

Additions to the CIP
Funding Source Changes
Changes in Total Project Cost of more than 10%
DD Approvals

Regardless of the specific BOR action(s) being requested, the PPF will also designate whether the project is requesting preliminary or final BOR approval, and this designation will be displayed prominently in the agenda item. Since the PPF is the primary vehicle through which the Capital Expenditure Policy is carried out, an incomplete PPF constitutes noncompliance with policy. Once the Approval Phase is complete (all necessary approvals obtained), a Project proceeds to the Completion Phase of its Lifecycle, where funds are expended and the Project is ultimately completed and closed. The Capital Improvement Program (CIP) documents the Lifecycles of all Projects, from Approval Phase through Completion Phase. The CIP is a dynamic document that is amended continually as changes to the Project occur and new stages of the Project’s Lifecycle are reached.

Approval Phase. The PPF delineates all aspects of the Project, namely general information, Project description, Total Project Cost, justification, Investment Metrics, Delivery Dates, and financial planning. Once submitted, the PPF is reviewed by OFPC, Controller and/or Finance depending on Project characteristics delineated in the PPF. Because it contains the information necessary for BOR approval, a current PPF is always required in order for the Project to be presented (or re-presented) to the BOR.

Cost Estimates. The primary goals of effective cost estimating are to provide accurate data for the institutional evaluation and planning process, a sound basis for BOR consideration, and an accurate baseline tool by which Project Management can control costs throughout the project execution.

Conceptual Estimate. The preparation of a Conceptual Estimate is the first step in establishing a budget for the proposed Project. The conceptual phase estimate will form the basis by which the BOR considers a Project for inclusion into the CIP. While the cost estimate at this stage of the project development is often considered a placeholder, it is recommended that sufficient pre-Project planning be undertaken to result in a minimum threshold Accuracy Factor for a Conceptual Estimate of 1.60 with a Confidence Factor of eighty percent (80%).

Control Estimate. Once a specific Project has been added to the CIP, the design work for the project commences. During this period of time, the Project Management team undertakes a series of actions in order to thoroughly determine the Project scope and prepare the design development Control Estimate and Control Schedule. Often, the Project Management team will engage external design professionals (Architect/Engineer team) and/or an external construction firm (in the case of both Design-Build and Construction-Manager-at-Risk delivery methods) to assist in the development of the Project scope, Control Estimate, and Control Schedule. A well-defined Project scope, consistent Control Estimate, and consistent Control Schedule should result in an Accuracy Factor of 1.10 and Confidence Factor of eighty percent (80%).

Exceeding the Accuracy Factor. If special programmatic or funding circumstances require that the BOR reconsider an earlier DD Approval (i.e., the Accuracy Factor of the original Control Estimate exceeds 1.10), such special conditions must be described to the BOR in detail, and a revised Control Estimate with revised Accuracy Factor must be presented to the BOR for reapproval.

Use of PUF Funding (non-LERR). Once PUF Debt is authorized by the BOR, the Project must begin construction within 36 months of the authorization date or the PUF debt authorization for that Project will lapse, unless otherwise extended by the Chancellor.

Use of LERR Funding. Only Major Projects are required to be included in the CIP. Although LERR Repair & Rehabilitation Projects were formerly not defined as Major Projects, this Policy mandates that all construction projects funded in any part with debt, including those funded via LERR, be defined as Major Projects and included in the CIP.

LERR Eligibility. With regard to Repair & Rehabilitation, only Projects with a TPC of less than or equal to $2 million are eligible for LERR funding. (This Policy does not place a limitation on the size of LERR library and equipment projects.) Library and equipment expenditures may be bundled when requesting LERR; however, R&R Projects should not be bundled together and presented as one project unless the improvements are all of a like kind (e.g., replacement of elevators in more than one building can be bundled together as one project). PUF will not be allocated to R&R Projects in an amount less than the TPC unless the institution has identified, prior to LERR Budget approval, other Funding Sources sufficient to fund the difference between PUF allocation and TPC.

Inclusion of LERR in the CIP. Once PUF allocations are approved via the LERR Budget, each R&R project must submit a PPF for inclusion in the CIP. (LERR library and equipment projects will not be included in the CIP.) PPF requirements are the same for LERR Projects as any other Project, except a President’s Letter is not required for LERR Projects; approval in the LERR Budget will serve in place of a President’s Letter. Addition to the CIP is automatically approved, provided that the TPC and Funding Sources have not changed from the documentation which accompanied the original LERR request. Once added to the CIP, LERR-funded R&R projects are subject to TPC change rules applicable to all Major Projects, as described in Regents’ Rule 80402, Major Construction and Repair and Rehabilitation Projects, i.e., TPC changes may generally be approved by the Chancellor in lieu of the BOR, unless the cost change will cause a variance of more than 10% from original BOR-approved TPC, and that variance exceeds $500,000.

Lapsing LERR. Any Library and Equipment or Repair & Rehabilitation appropriation not expended or obligated by contract/purchase order within six months after the close of the fiscal year for which it was allocated is to lapse and be made available for future System-wide reallocation unless specific authorization to extend the obligation of funds is given by the Associate Vice Chancellor – Controller and Chief Budget Officer (“Controller”) on recommendation of the institutional president and the appropriate EVC. Such specific authorization will extend the obligation of funds for no more than 12 additional months from the time the extension is granted.

Use of Gift Funding. Because of the unique nature of Gift funding, particularly the unpredictability of the timing and amount of Gift receipts, RFS Debt is often used to “backstop” Gifts, either as interim financing pending actual Gift collections or as permanent financing to cover any unanticipated fundraising shortfall. For Projects where Gifts have not been received in-hand or firmly committed to be received during construction (as evidenced by a signed Gift instrument) at the time of final BOR approval, the Office of Finance will require that RFS Debt or another acceptable source of funds be denoted in the Funding Source Table in lieu of the uncollected and uncommitted Gifts. Gifts to be collected in the future will be dedicated to the repayment of the RFS Debt, to the extent permitted by the donor.

Completion Phase. The Completion Phase of a Project’s lifecycle varies greatly among Projects. The Completion Phase for most construction-related Projects is complex and takes place over the course of several months or years, entailing the expenditure of funds and the subsequent closure of the Project. In all cases, debt funding must be fully expended and/or transferred so that the finished Project can be closed.

Substantial Completion. Once a building is ready to be occupied for its intended purpose, a Substantial Completion form is signed by a member of the OFPC Project Management team, the design professional, and the contractor. Upon Substantial Completion, the insurance risk is assumed by the institution. Substantial Completion signals the completion of all major construction work, and any unencumbered funds remaining in the OFPC-managed accounts may be moved to institutionally-managed accounts, subject to the approval of OFPC Project Management.

Project Close-Out. After institutionally-managed, project-related costs are completed, the institution initiates the Project Close-Out form. After reconciliation between institutional accounts and OFPC Project accounts, the disposition of remaining funds is determined according to the type of funds remaining. If remaining RFS or TRB funding is not yet issued, then the authorization simply lapses. However, if remaining RFS or TRB funding is already issued and debt proceeds are on-hand, then those proceeds are either used by the Office of Finance to pay debt service, or they are moved to another fully-authorized Project (with necessary institutional and/or legislative approval). Remaining PUF funding simply lapses, unless the Chancellor approves moving the funds to another fully-authorized PUF Project. Remaining institutional funds are returned to the originating source of the funds. Once a Project is completed and closed, it must be moved from construction-in-process to a capital asset in the financial statements.

PROJECT PLANNING FORM (PPF)

Work with Academic Affairs or Health Affairs to refine Project details.
Complete the PPF, which can be accessed at https://www.utsystem.edu/PPFSystem.
Do not leave any blanks on the PPF. Instead, enter “N/A”, or enter an explanation why the data is not provided.
If the Project is going to the BOR for DD Approval, appropriation of funding, and/or authorization of expenditure, then provide (1) updated PPF including any revised Delivery Dates, and (2) up-to-date financials if it is funded with any RFS debt. A pro forma is required for revenue-generating Projects. A revised six-year forecast is required for non-revenue-generating Projects.
Attach a letter signed by institution President and the Academic Affairs or Health Affairs EVC.
Submit final PPF with President’s Letter (signed by President and appropriate EVC) via the web-based PPF System, along with any other required attachments such as a pro forma.

PROJECTED EXPENDITURE TIMELINE

Required on the PPF, which can be accessed at https://www.utsystem.edu/PPFSystem.
Work with Project Manager to determine how much of the PPC will be spent in each fiscal year following its addition to the CIP.
All fiscal years must sum to the PPC.
Unless there are unusual circumstances, funding sources should be spent in the following priority order: TRB Debt, PUF Debt, Income on PUF Proceeds, RFS Debt, then Institutional Funds.
If/when a Project returns to the BOR for additional approvals, projected expenditure timeline must be updated.

PRO FORMA

To be used for RFS-funded Projects that are fully or partially self-supporting.
Pro Formas are individually built by the institution for the specific Project in question.
Contact Office of Finance to get approval of debt assumptions, i.e., amortization term and rate.
Forecast should match the length of the debt, i.e. 20 years, 30 years, etc.
Forecast all operating revenue and expenses associated with the Project.
Arrive at a “net income” for the Project in each forecasted year.
Forecast debt service on the Project using approved debt assumptions.
Divide “net income” by debt service in each forecasted year.
Target 1.3x Debt Service Coverage for revenue-generating Projects. The “two out of three” ratio test generally does not apply to revenue-generating Projects, as long as they can meet 1.3x DSC.
Submit with PPF when seeking BOR DD Approval.

UPDATED SIX-YEAR FORECAST

To be used for RFS-funded Projects that are not self-supporting.
Contact the Office of Finance to obtain the most recent six-year forecast on file.
Add the new Project and its incremental debt into the Future Debt tab.
Build in incremental revenues and expenses associated with the Project into the SRECNA.
Meet at least two out of three of the following standards:

At least 1.8x Debt Service Coverage
At least 80% Expendable Resources-to-Debt
No more than 5.0% Debt Service-to-Operations

Submit with PPF when seeking BOR DD Approval.

CASH REQUISITIONS

Obtain all necessary BOR and THECB approvals.
Request debt issuance from Office of Finance.
After debt has been issued, complete the Cash Requisition Form, found at www.utsystem.edu/fpc.
An authorized representative must sign the Cash Requisition Form.
The Cash Requisition Form must include funding source for reimbursement (PUF, TRB, or RFS), timing of expenditure, and type of expenditure (equipment or construction).
Submit completed Cash Requisition Form to OFPC.
Reimbursements wires are generally sent weekly on Thursdays by the Office of Finance, with exceptions made for official holidays, etc.

CLOSING OUT A PROJECT

When a Project is completed with no more expenses to be recorded against the Project, OFPC will generate the Form 4/5. There may be numerous substantial completion letters for portions of a Project but this does not indicate that a Project has reached final completion. NOTE: With the implementation of OFPC’s new project management system, OPUS, this may not be referred to as a “Form 4/5” any longer, or even needed.
If the Project has any remaining funds from PUF, TRB, or RFS Debt proceeds, OFPC will notify the institution and the Office of Finance that the Project is being closed and that the funds must be moved out of available funds for construction reimbursement.
The Office of Finance may move the remaining funds to the debt service account and apply the funds towards the Project’s next debt service payment(s), or the remaining funds may be moved to another CIP project with all its necessary approvals in place.

FORMS AND TOOLS/ONLINE PROCESSES

The Project Planning Form (PPF) is a web-based form permanently located at: https://www.utsystem.edu/PPFSystem. Each institution can decide who has access to the system. Access to the PPF System can be requested by visiting the site.

APPENDIX

Using the PPF System

http://www.utsystem.edu/policy/forms/uts168/usingtheppfsystem.pdf

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UTS168 - Capital Expenditure Policy

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