Texas Higher Education System Generic Building Componentization Guidelines

Guidelines

The recognition of components is required for the construction or renovation of facilities or improvements with a fair market value greater than or equal to $1 million that are rendered into service on or after September 1, 2001. For centrally managed projects, the Office of Facilities, Planning and Construction, or other similar office, will begin requiring general contractors of newly awarded contracts to provide the cost data related to each of the specified components of a building. Capitalized buildings that have a fair market value between $100,000 and $1 million are not required to be componentized. However, for consistent treatment it is recommended that those buildings be componentized when it is cost beneficial to do so. The goal is to standardize these processes across State Higher Education.

For renovations and repairs to existing structures the total project cost will need to be evaluated to determine if capitalization is appropriate. If the project total meets the threshold for capitalization, project expenditures must be componentized. A component of a building that is replaced will be depreciated separately based on its individual useful life if the project cost is greater than the capitalization threshold or the expenditure increases either the useful life or value of the building by 25% of the original life period or cost of the building. An example of this would be the replacement of a shingle roof system. The key questions to ask are [1] does the project cost satisfy the capitalization threshold? Or [2] does this replacement increase the quality, value and/or useful life of the building by 25% or more? If the answer is yes to either question, then the cost incurred should be added to the value of the building as a component and separately depreciated based on its individual useful life.

Example

Is the cost greater than the capitalization threshold?

Yes. ($250,000>$100,000)

Does the roof replacement extend the useful life or value of the building by 25%?

In this example, the $250,000 spent on the replacement of a building’s roof will be added to the book value of the building because the cost was greater than the capitalization threshold of $100,000. This $250,000 will then be depreciated over the new roof’s useful life of 15 years.

If detailed project costs by building component are not available or unattainable, ’Column B’ of the following table provides an estimate of component costs by percentage of the total construction cost. This table of percentages may be used to estimate component costs for those projects. Soft project costs such as design and management fees may be included in ‘(j) Miscellaneous construction features’ or may be prorated to the building component categories using the table.

For buildings that were constructed prior to September 2001, depreciation of buildings by components is not required. However, a campus may use the Generic Building Table below in developing a building useful life for depreciation purposes. Column D (Weighted Life-Cycle Years) of the table is computed by multiplying Column B (% of Total Construction) times Column C (Life-Cycle Years). This example illustrates the rationale used in developing a 22-year useful life for building depreciation. The campus may modify this example of a 22-year depreciation schedule by adjusting the typical life cycle year of a building component or the % of total construction. The table example includes a modification of the recommended useful life for the component, ‘Miscellaneous Construction’ feature, from 15 years (paragraph (2)(j)) to 20 years due to the inclusion of site costs in this component category. (For example, if the life cycle of ‘Miscellaneous Construction’ of 15 years were used, the weighted life-cycle years for Miscellaneous Construction would be (6% x 15 life-cycle years) 0.9 weighted life-cycle years instead of the 1.2 in the table example. If the 15-year life cycle were used in this example, the useful life of the building would be 21.7 years.

Other examples of modifications that could be expected to the table below involve the components, roofs and floors. These building components life-cycle years vary considerably by type of material used. For example, a building with a metal roof would have a roof weighted useful life cycle years of (3% x 20 life-cycle years) 0.6 weighted life-cycle years. And if that same building had ceramic tile floors, the weighted life cycle years for floor coverings would be (2% x 30 life-cycle years) 0.6-weighted life-cycle years. Using the other values as listed in the table, the useful life of the building would then be 22.6 years.

Generic Building Table

* Columns A & C “Building Component” and “Life-Cycle Years” include elements used in SB 482 and the Definitions section of this guideline. Column B the “% Total Construction” uses empirical data for new construction. The life cycle years (Column C) for “Misc. Construction” above uses a modified value of 20 years due to the inclusion of site costs in this category. Column D “Weighted Life-Cycle Years” has been developed to illustrate how a campus may develop an estimated useful life of a building when no details are available on components. Column D is derived by multiplying Columns B & C to develop the 22-year useful life example above. This 22-year useful life would change should a campus modify any of the values in Columns B or C.

For projects managed at the System level, a Construction Project Completion Report, for all projects rendered into service after September 1, 2001 will be forwarded to the campus. This report will show the separation of costs associated with each component category and will also recommend a useful life for each category based on an engineering analysis. In addition, the report will itemize any personal property and institutionally managed costs budgeted in the total project cost. It will then be the responsibility of the institution to record each of the componentized categories into the System or institution accounting ledger and the State Comptroller’s Statewide Property Accounting (SPA) system.

For projects that are institutionally managed, contractors and physical plant staff will need to componentize qualified projects. This will require a similar process to that used by the System Facilities Planning & Construction office. SB 482 establishes the minimum listing of components as used in the example table above. If your campus finds that it would be more appropriate to define additional components that is an option you may elect. You may find that every structure does not have all the listed components so in some cases the value may be $0 for those components. Also, please note that the useful life is the recommended useful life found in the definitions section. If your institutional experience indicates another useful life is more appropriate, you may use that useful life. Since this may be subject to audit, it would be important to maintain supporting documentation/reasoning.