Finding The Funds To Fix The VIC

Thu, 01/04/10

Turning the UN Vienna International Centre (VIC) into a more sustainable workplace was a challenge on many fronts. Not least of these challenges was working out how to raise the funds.

It was clear from the start that it would need serious money. After 20 years of operation, the huge complex no longer came up to scratch in meeting the requirements of a modern office building. Facilities needed to be replaced and adaptations made. Urgent repairs were necessary, including the removal of asbestos, which represented a health hazard for staff.  Its environmental performance left a great deal to be desired.

On the positive side, however, a well-planned investment in upgrading the VIC could be offset by achieving real savings, both in environmental terms and in hard cash on utility bills. A comprehensive refurbishment could improve energy efficiency, reduce the need for artificial heating and cooling, cut electricity and water consumption and so on. There would be opportunities to make operations more efficient too. 

So, when the strategic plan was developed, it did not just explore the multitude of solutions on technical and feasibility grounds. It scrutinized in terms of economic and ecological cost-benefit calculations too. It gave careful consideration to their operational maintenance requirements, their logistics and their financial implications. And it recognised that sound financial management would play a key role. The chosen solutions could only be implemented if the necessary funds were earmarked and correctly allocated, and  if it could be ensured that the finance was actually available when required. 

The total cost estimate came out at 175 million Euros. As the host country, the Austrian government agreed to pay a big chunk of that, 100 million Euros, for the asbestos removal work, in a 10-year programme progressively ensuring that every part of the complex was free of this potential hazard to health. But there remained the matter of finding 75 million Euros for the rest of the refurbishment.

Four international organisations, with nearly 4,000 employees, are accommodated in the VIC: the International Atomic Energy Agency (IAEA), the United Nations Industrial Development Organization (UNIDO), the United Nations Office at Vienna / United Nations Office on Drugs and Crime (UNOV/UNODC) and the Preparatory Commission for the Comprehensive Nuclear-Test-Ban Treaty Organization (CTBTO). 

These four organizations customarily budget annually or biannually for building maintenance expenses, along with their other operational expenses. The costs are shared by the four of them, and managed by Building Management Services (BMS) which is housed at UNIDO. What the BMS team realised in this instance, however, was that breaking out of the limitations of the normal budget cycles was the key to unlocking the necessary finance to fix the VIC's shortcomings.

 

Limitations of the standard budgeting approach

 

The way building management is usually financed often leads to over-budgeting. This arises partly as a precaution to cope with fluctuations (which usually means increases) in utility prices; in Vienna they have gone up by 37% in the past 10 years. Over-budgeting also happens because under-budgeting, besides potentially jeopardizing the operation of the building, requires complex and lengthy processes to request additional funding within a fiscal/financial year. But there is also the problem that unused funds have to be reimbursed to donors, with a justification for why they have not been used. To avoid this, in many cases, funds are used up before the year end in a manner that is not necessarily the most cost-effective. 

Annual or biannual budgeting only allows agencies to make building improvements little by little. It also prevents them contracting with service providers on a longer term basis, even though this could often get them a better deal and would be less prone to leaving them tied to a previous supplier's technology.

 

Advantages of the 'special fund' approach

 

Instead, the BMS team succeeded in gaining approval for a special fund, which it would manage independently, alongside the organizations' standard budgets. This put it in a much better position to administer and deliver the VIC upgrades in a more timely and cost effective way. 

This special fund, unparalleled in the whole UN system, allows unused funds to be carried over and used for the following year’s improvements. The upshot is that the BMS can budget exactly for real requirements. Unused funds are not reimbursed, so future budget reductions are not incurred. As the 'independent' fund manager, the BMS can enter larger contracts and make investments that take advantage of economies of scale and deliver more complete solutions. 

The fund is financed by the four organizations at fixed rates, allowing them to budget accurately for it. They are invoiced quarterly over a period of 10 years, the timeframe of the improvement plan. Their contributions are determined by a formula which takes account of the area they occupy within the VIC and their staff headcount.

 

Costs and benefits

 

It took painstaking detailed work and numerous consultations to persuade the administration of the four VIC-based organizations, the member states and the Governing Board that this was the right way to move forward. 

The key factor in winning their approval was presenting the proposals for the 75 million Euro special fund in terms of the savings they offered. The BMS was able to promise a 7% reduction in operational costs for the first year. Moreover, there would be no cost increments in the following nine years. This was something that was only achievable thanks to the renovation plan's far-reaching measures to improve efficiency in the building's energy use, heating and water consumption.

The reduction in operational costs, amounting to 1.5 to 2 million Euros per year, is an immediately quantifiable benefit. Less tangible, but no less real, are the improvements in the working environment for UN staff and the reduction in health hazards. Overall, the VIC has been made more sustainable. Last but not least, this is a project that delivers on its promises; it 'walks the talk'.  This all makes it a remarkable example of how to finance a sustainability initiative within the UN. 

Categories: Buildings, Finance