Deferred maintenance in schools is common due to the difficulty in finding funding to meet all their needs. The unfortunate consequence is that this will begin to challenge the quality of the learning environment for students and staff. One way to improve school buildings without putting additional demands on capital budgets is through a guaranteed energy savings performance contract (ESPC), also called a guaranteed energy cost savings contract.
The Process to Implement an Energy Savings Performance Contract
The initial step in implementing a guaranteed energy savings performance contract is to determine whether a viable opportunity to save money exists. This may be accomplished by engaging one or more energy service companies to complete a preliminary analysis of the district to establish feasibility. If it is determined that energy efficient upgrades are financially viable, the district should get board approval to put out a request for qualifications (RFQ) or a request for proposals (RFP).
Figure 1
The process typically involves three primary stages: project development, implementation, and performance (see Figure 1).
The project development stage typically includes a preliminary analysis to confirm economic viability and the completion of a request for qualifications or proposal to select the energy service company that will best meet your needs. Once your partner is selected then the detailed audit is started to develop the detailed project scope, design, cost, savings and a mutually agreed-upon measurement and verification plan.
According to the National Association of Energy Services Companies (NAESCO), typical costs for a comprehensive energy audit range between $0.04 and $0.12 per square foot of facility, depending on the size and complexity of the buildings. Some companies may offer the audit at a reduced marketing rate or for free and then make up the costs when they implement the projects. The fee may be rolled into implementation cost (no out-of-pocket money required) or be paid outright by the district if it elects not to proceed with implementation.
It is often during this stage that the energy service company will select or negotiate with vendors and contractors to provide project pricing. The detailed audit is a detailed analysis that will result in an array of energy conservation and facility-improvement measures, with guaranteed savings and cost amounts identified. The data provided will enable you to make an informed decision regarding implementation. Once this detailed study is complete, contracts are created to implement the upgrades and a decision is made by the district on whether or not to move forward.
Project implementation begins after mutually agreeing on the energy conservation and facility improvement measures to include from the detailed audit and signing a contract. The implementation stage provides for final design, contractor and vendor contracts, construction, training and often commissioning. Conceptual and detailed engineering design is done during the detailed audit. System commissioning may or may not be optional but ensures all mechanical and electrical systems are ready for active service. Energy service companies should offer training, including technical training (on-site and hands-on) on the systems installed.
Project performance is the multi-year period encompassed by the savings guarantee and/or finance term associated with financial parameters of the project. Unlike traditional construction, energy service companies are committed to the long-term effectiveness of the measures they install. This final stage is performance management, which encompasses the services of construction closeout through the savings guarantee period. During this stage of the project, the energy service company provides measurement and verification of the savings projected and may also provide service and maintenance to ensure program effectiveness is maintained.
As your project partner, it is the energy service company’s responsibility to work with you to define your project and provide experts to fulfill the needed roles for evaluation, implementation, and long-term performance.
Selecting an ESCO Partner
Figure 2
Fundamentally, many risks can be minimized through the selection of the right partner for the project. Because of the long-term contractual relationship that is a part of guaranteed energy cost savings contracts, the selection process is even more critical. Consider establishing criteria or a list of qualities and characteristics that are important for you to have in your partner (see Figure 2). Explore areas such as a company’s ability to make unbiased product decisions, their history of successful projects, use of industry accepted methodologies for savings verification, corporate focus on performance contracting, corporate longevity, and financial stability.
Creating a Request for Qualifications or Proposals
The primary difference between using an RFQ versus an RFP is the element of cost. While an RFQ focuses solely on the energy service company’s qualifications and past experience, an RFP may require that the company’s fees be provided, or preliminary project cost information and savings estimates be provided. It is very important, however, to recognize that until the detailed audit is completed, the project costs and savings estimates are preliminary and should not be over-emphasized or valued more than the energy service company’s qualifications and capabilities. Firm and accurate project pricing and savings projections are completely dependent upon the final negotiated scope of technical measures and services provided by the company.
The Evaluation Process
It is important to identify members of the evaluation team early in the procurement process in order to receive their input during the development of the project and scope of procurement. The evaluation team may be comprised of any number of school personnel including but not limited to the following:
- Facility/operating engineers
- Maintenance staff
- Purchasing agent
- Energy manager/ designated project manager
- Administrative financial manager
- Legal council
However, the team is assembled, it is important that they be involved with the daily facility operations, the challenges you are trying to overcome, or the solution implementation.
The evaluation process is usually composed of the following three steps:
- Review of written proposals
- Client reference checks
- Oral interviews of short-listed companies (Optional)
It is also advised that the evaluation criteria be weighted to reflect its relative importance to the overall goals of the specific project. An example of some of these may include the following:
Experience
- Technical qualifications and experience of personnel
- Experience with implementing guaranteed energy cost savings contracts
- Quality of project history and documented savings performance of past projects
- Quality of customer service on past projects
- Reliability of equipment performance on past projects
- Quality of technical skills on past projects
- Is the energy service company National Association of Energy Service Companies (NAESCO) accredited?
Project Management
- Ability to effectively manage past project construction
- Ability to manage challenges and emergencies effectively on past projects
- Quality of energy service company’s communication skills
Technical
- Comprehensiveness of technical approach to past projects
- Ability to plan and complete all schedule phases of past projects
- Quality of engineering and product selection on past projects
- Comprehensiveness of measurement and verification services on past projects
- Quality of technical energy auditing
- Quality of provisions for training facility staff
Financial
- Stability of energy service company
- Demonstrated ability to provide or arrange financing on past projects
- Ability to effectively manage budgets on past projects
- Reasonableness of financial assumptions proposed on project
- Quality and reasonableness of fee structure
And finally, remember that while there are many well-qualified companies in the energy services industry, the team chemistry created by the company’s representatives working with your staff is just as important, if not more so, than a company’s technical proficiency or lengthy history. The desire of the energy service company’s staff to work on your behalf, and not just theirs, can determine the success or failure of your project.
Whatever your method for narrowing down the companies you engage, be diligent about checking references. The energy services industry is built on reputations for delivering savings for the long-term, so you should be able to find out who delivers on their promises. Consider this when requesting references, since proximity to your city or town is merely one aspect of experience to evaluate. A resource to consider is the National Association of Energy Service Companies (www.naesco.org), the long-standing industry organization. They have an energy service company accreditation program that rigorously examines the core competencies and business practices of participating companies. This may also provide valuable information for your selection process.
About the author – Paul Harrell is a business development manager with Navitas. His background as a Certified Public Accountant and 33 years of experience in the education sector help him bring a practical approach to developing strategies for school districts wanting guidance in how to manage their overall budget and utility costs. He can be reached at pharrell@navitas.us.com or 913-344-0049