Capital Construction Project Guidelines

I.	Introduction
II.	Project Approvals, Phases and Committees
III.	Procedure for Requesting a Capital Project
IV.	Development of a Project Budget
V.	Accounting Reporting and Control
VI.	Real Estate Leases and Leasehold Improvements
VII.	Closeout
VIII.	Capital Equipment or Lease Purchases

I. Introduction

This document outlines the policies and procedures governing capital construction projects, real estate leases including leasehold improvements and capital equipment or lease purchases at Duke University. The Board of Trustees (BOT), which approves the capital budget, endorsed these guidelines to create an orderly, efficient and coordinated system. These guidelines do not apply to Duke University Health System, which operates under separate policies. 

II. Project Approvals, Phases and Committees

Approvals:

Phases:

a. Feasibility Study – For all Tier 3 Projects and for any other capital project designated by the EVP for a feasibility study, the programmatic need, scope of work, site location, expected total project costs, and preliminary funding plan (including philanthropy commitments) is presented to the Resources Committee.

b. Project Initiation – When a project is ready to begin the design phase, a request for project initiation is required. The request for initiation follows an approved feasibility study. Approval of initiation authorizes the project to proceed into the formal design phase.

c. Design Approval – When a project's design and associated cost estimate have been completed to a sufficient level (typically design development (DD) level), the project will seek approval of the design. Design approval identifies the architectural/engineering solution, estimated total project cost, and includes the funding plan for the project and the proposing school/unit’s ability to afford the upfront and ongoing costs related to the project. Any significant changes to budget or scope will be revisited with the BOT as a formal approval.

d. Construction & Financing – When a sufficient level of design has been completed, the request for construction & funding may occur. At this point, the funding plan evaluated at the design approval phase would be re-evaluated prior to allowing a project to move forward.

e. Acceptance – The last phase is for the University to officially accept the project. Project acceptance typically occurs approximately 12 months from the date of substantial construction completion.

f. Scope Changes – Programmatic scope changes are defined as changes developed and initiated by the department or project champion. Owner controlled scope changes are those proposed by contractors, consultants and/or FMD or FPDC. These may occur as new construction-related ideas and opportunities arise that reduce costs or improve outcomes, such as new materials or processes. All significant programmatic and owner controlled scope changes that occur during the design or construction phase and which significantly impact the contingency or total project budget must be approved by the appropriate body based on project tier. 

g. Budget Modifications – Requests to increase a project budget must be appropriately approved prior to funds being spent or committed.  In addition, budget overages must be approved by the appropriate body based on project tier.

Committees:

a. Capital Subcommittee:  Supports the Resources Committee in the execution of its responsibilities by reviewing and recommending to the Resources Committee approval of University capital projects over $10.0 million, including, but not limited to construction of new buildings, renovations or alterations of existing buildings, major landscaping alterations, purchases of improved or unimproved property that is to be used for University purposes, and information technology or equipment investments.  Capital Subcommittee membership consists of the following:

• Trustee (3-4)
• Faculty (1)
• Student (1)

     Ex-Offico:

• Executive Vice Presidnet (non-voting)
• Provost or their designee (non-voting)

b. Resource Committee (RC):  Exercises oversight to ensure the University has the physical plant necessary to support the mission and priorities of the University, including facilities and land leased by the University. The Committee is responsible for the oversight of the University master plan and capital projects greater than $10.0 million. RC membership consists of the following membership:

• Trustees (8)
• Faculty (2)
• Students (2)

     Ex-Officio:

• Audit & Compliance Committee Chair
• Executive Vice Presidnet (non-voting)
• Executive Vice Provost (non-voting)
• Vice President for Finance (non-voting)

c. Board of Trustees:  Responsible for approving the annual capital budget and University master plan.  The BOT must approve construction for projects greater than $10.0 million and funding approval for projects financed with long-term bonds.

 

III. Procedure for Requesting a Capital Project

1. A school or department may propose a capital project by first consulting with Facilities Management Department (FMD) for University projects or Facility Planning, Design and Construction (FPDC) for SOM/SON projects. A project manager will be assigned to assist the school or department in determining the scope, feasibility, budget and schedule of the project based upon the programmatic need including completion of a capital project request form (CPRF).

 

IV. Development of a Project Budget

a. All project budgets are developed by FMD or FPDC project managers.

b. Project budgets evolve over time and solidify as the design progresses.

c. The total project budget includes: construction costs, consulting expenses, project management fees, the initial complement of furniture and fixtures, expenses related to relocation of utilities and non-utility infrastructure, and any other major expense.

d. New capital project opportunities that relate to previously approved projects should be carefully examined to determine if a second project is warranted or if budget modification to the existing project is required.

e. The building project budget includes utility relocations caused by the siting of a new building.

f. Each project budget must include a contingency budget line regardless of type or tier.  The project contingency amount is determined by FMD or FPDC. 

g. Each construction project request must include an estimate of on-going operational expenses such as maintenance and other operating expenses.

h. The Capital Budget Office (CBO) will regularly distribute to senior administration a capital projects financial report, to include approved budgets, actual-to-date information, and cost projections.

 

V. Accounting, Reporting and Control

VI. Real Estate Leases and Leasehold Improvements

Includes any lease (operating or capital) for space, as well as up-front costs of tenant up-fit, leasehold improvements, and fixed equipment.

a. The Office of the Associate Vice President for Capital Assets and Real Estate processes requests for new real estate leases and lease renewals.

b. The present value of future lease payments (net of the operating expense portion) is calculated using a discount rate of 5.5% (consistent with University internal borrowing rate).  Add the up-front costs of tenant up-fit, leasehold improvement, and fixed equipment to arrive at a value for the lease.

c. Required approvals:  The Committee reviews, considers and makes recommendations to the Board relating to leases by the University as lessor or lessee of real property involving a total expenditure of greater than $10.0M per lease.  Any amount under $10.0M requires the approval of the EVP or his designee.

d. Negotiated lease extensions are treated as new leases.

e. Leasehold improvements projects initiated subsequent to the initial approval of the operating lease are considered normal capital construction projects.

f. Budgeting: An aggregate amount (by financial responsibility) will be included for approval in the annual capital budget. The lease payments themselves are included in University operating budgets.

Procedure for Requesting Approval of a Lease:

a. Needs for leased space must be requested through the Office of the Associate Vice President for Capital Assets and Real Estate. Requests for leasehold improvements and/or tenant upfit improvements are requested through the office of Project Management or FPDC.

b. The Office of the Associate Vice President for Capital Assets and Real Estate is responsible for including but not limited to a copy of the proposed lease agreement, present value calculation, and any other information to justify the lease.  Annual O&M costs should also be disclosed in the documentation. All appropriate approvals are required to be in place prior to signing the lease. 

 

VII. Closeout

Once the project manager declares the project substantially complete, a Capital Project Financial Close Out form will be processed and submitted to the CBO for code closure in R/3.

 

VIII. Capital Equipment and Lease Purchases

Includes any capital equipment or lease purchase greater than $100,000.  Approvals follow similar guidelines as capital projects.

1. Tier I:  Purchases costing less than $1.0 million require Dean, Director, or Department Head and Management Center Budget Official approval.*
2. Tier II:  Purchases costing $1.0 million but less than $10.0 million require Dean, Director, or Department Head, Management Center Budget Official, Capital Budget Office, and EVP approval.  BOT approval also required if funded with external debt.*
3. Tier III:  Purchases costing $10.0 million and greater require Dean, Director, or Department Head, Management Center Budget Official, Capital Budget Office, EVP, Capital Subcommittee, and RC/BOT approval.*

*For equipment purchases only, required documentation includes the following: short justification explaining the need for the equipment, how/where it will be used, funding source(s), and any associated space modifications. Include any related capital costs necessary to support equipment installation.



History
Revised:	June 2023
Revised:	October 2018
Revised:	September 2006