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CAPEX vs. OPEX: Bridging the Gap

By Joseph Brill
Washington, DC Office

At some point during any project design lifecycle, an Owner/Developer will review the foodservice layout and cost estimate with us, the foodservice consultant, to ensure the concept and budget are satisfied.  This is when Value Engineering (VE) is employed and a design can be modified, or “VE’d”, to get the project within budget.  The design team looks at equipment, systems, and additional features, considered Capital Expenditures (CAPEX), which are not crucial to the core of the program but which may have been specified to greatly reduce Operating Expenditures (OPEX), such as utility costs and labor costs, and to contribute to a sustainable design. In the foodservice realm, the Operator of the facility – who bears the long-term operating costs – typically is neither funding the project nor involved in the crucial stages of design.  Therefore, it becomes the foodservice consultant’s role to help bridge the gap and generate a design that meets the CAPEX budget of the Owner/Developer and the OPEX requirements of the End user/Operator

There is a broad range of quality products and systems that are often included in an initial design but historically have been Value Engineered out.  One system that’s gaining more credibility and popularity is ventilation demand control.  This system controls the exhaust ventilators, speeding the fans up and down based on cooking volume through the use of duct and space temperature probes and sometimes infrared sensors.  Depending on the manufacturer, some systems can control multiple hoods independently and some multiple fans.  Even though it has an approximate cost of an additional 70% on top of the cost of the ventilation system itself, the ventilation demand control system typically has an ROI of 2-5 years, depending on hours of operation, geographic location, utility cost, and turndown ratio.  This is not applicable for every project, however, when it is applicable and specified, it is most often VE’d out.

Similarly, a utility distribution wall is another supplemental system that is often eliminated.  Excellent for island applications, this system is a support and distribution center positioned between back-to-back hoods that can include any combination of gas, hot water, cold water, chilled water, compressed air, electrical power, fire and safety control, steam supply and condensate return lines delivered to it.  The associated costs are roughly 20% above the initial cost of the exhaust ventilators; however the savings are realized almost instantly through reduced costs associated with construction and coordination through electrical, plumbing, fire, and kitchen disciplines.  Accordingly, as the operation changes, there is a built-in utility surplus so equipment can easily be switched, replaced, or substituted without demolishing walls and rerouting utility pipes.  Depending on the operation, that flexibility is vital to the success of the facility. 

There are many other examples of commonly eliminated back of house capital expenditures, including self-washing floor systems that greatly reduce labor, waste management systems that save on labor and hauling costs, and refrigeration systems that show significant savings on utilities.

The same holds true in the front of house servery areas.  Depending on the application and quantity of refrigerated units, specifying remote compressors versus self-contained units is an option that reduces heat rejection into the servery, thereby reducing the cost to air-condition the space.  Specifying remote compressors also allows for proper ventilation, maintenance, and service, therefore facilitating longer life spans of the equipment.  However, this option is typically eliminated in VE.

Another example of popular VE is substituting manufacturers.  The differences between manufacturers are innumerable and include: utility consumption, capacity, output, flexibility and customization, durability, and service. 

So how can we keep more of these good things in the project, while meeting the Owner/Developer‘s project hurdles?  When the Owner/Developer is also the Operator, shifting the focus from investment to returns is a good approach.  Almost all the aforementioned equipment, systems, and features have a realized savings that can be calculated by the manufacturers and local energy companies and then shared with the client/developer to be factored into the NPV analysis of the project in comparison to elimination of the capital expenditure.  When the Owner/Developer will be leasing the space or hiring a foodservice contractor, these same savings calculations can be used to justify a premium to the lease or to arrange a more favorable deal and help to bridge the gap between the Owner/Developer and the Operator.

In my opinion, this is the essence of “consulting” – to provide our client with the best possible design, taking into consideration space, budget, functionality, and flexibility, long-term costs and ROI, while balancing the needs of the Owner/Developer and the Operator.

What is your stance on the issue?  Do you know of other existing arrangements to satisfy the challenges both owners and operators face?  What happens when some systems and equipment become mandatory due to more stringent codes?  How has the “green” movement effected your design decisions?  Feel free to share your thoughts!

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