MILCON Analysis, Non-Energy Project

This MILCON (military construction) module supports LCC studies for the Army, Navy, and Air Force when the project is not primarily an energy or water conservation project. The module is consistent with DoD's Memorandum of Agreement on Criteria/Standards for Economic Analysis/Life Cycle Costing for MILCON Design, (March 1994). It also follows the rules of the OMB Circular A-94, Guidelines and Discount Rates for Benefit Cost Analysis of Federal Programs.

The instructions given in BLCC5 Help apply, in general, to all federal LCC analyses. However, the rules for MILCON analyses include some DoD-specific instructions and terminology:

 

Alternatives to be Explored

It is recommended that the analyst consider and document, as appropriate, the following alternatives:

  1. Status Quo (do nothing)
  2. New Acquisition or Construction
  3. Leasing
  4. Modification of existing assets (i.e., renovation, upgrade, revitalization, etc.)
  5. Use of other Government facilities (on-base or other nearby bases, DoD or non-DoD)
  6. Basic Allowance for Housing
  7. Privatization (required for utility systems)

All alternatives must be feasible from a technical point of view.

 

Middle-of-Year Discounting Convention

Annually recurring costs (OM&R, energy and water costs) are usually discounted from the middle of the year in DoD analyses rather than from the end of the year and in FEMP and OMB analyses. (Non-annually recurring and single amounts - for example: phased-in initial costs, major repair and replacement costs, residual value - are discounted from their actual date of occurrence.)

 

Discount rate

In MILCON Analysis - Non-Energy Project, BLCC5 will default to the discount rates published by OMB in Appendix C of Circular A-94 for "cost-effectiveness, lease-purchase, internal government investment, and asset sales." Discount factors based on these discount rates are updated each April and published by NIST in Energy Price Indices and Discount Factors for Life-Cycle Cost Analysis, NISTIR 85-3273. For "public investment" and "regulatory analyses", OMB prescribes a real discount rate of 7 %. However, Circular A-4, released in January 2004, OMB recommends that two estimates be submitted, one calculated with a discount rate of 7 % and one calculated with a discount rate of 3 %.

Initial Project Costs
If the Beneficial Occupancy Date is later than the Base Date, the Initial Project Costs are entered at the "Midpoint of Construction" or can be evenly divided throughout the Planning/Construction Period. The Midpoint of Construction must be halfway between the Base Date and the Beneficial Occupancy Date.

Residual Value Calculation
The US Army Corps of Engineers suggests a useful life of 60 years for New Construction, 45 years for Family Housing, 25 years for Renovation projects, beginning with the date of completion. Land depreciation begins at the base date. A straight-line depreciation method is recommended.

Sensitivity Analysis
The US Army Corps of Engineers recommends that analysts perform a sensitivity analysis for their evaluation results, varying input values by plus or minus 25% for significant cost items.

Terminology
In MILCON modules the Service Date is referred to as "Beneficial Occupancy Date;"
OM&R Costs as "Routine OM&R Costs;"
Replacement Costs as "Major Repair and Replacement Costs." Non-capital replacement costs for MILCON analyses are entered as "Non-Annually Recurring Routine OM&R Costs."