Quality Assurance in Energy Savings Performance Contracts

Energy savings performance contracts (ESPCs) offer advantages over other types of government acquisitions in regard to quality assurance. The ESPC process is transparent, collaborative, and flexible and allows all stakeholders to reach a consensus. This process allows the government to drive the project requirements and the private sector to develop solutions.

Unlike traditional government procurements where the design is often a separate contract from the construction contract, ESPCs allow the same private sector partners who design the projects to bring their expertise to the construction phase. This allows the projects to be both fiscally and solutions-driven. As the government agency refines the requirements concurrent with the private sector partner proposal development, they develop the solutions together. As with any contract, there are risks to both parties. A comprehensive approach to quality assurance serves as a means to mitigating these risks.

Guaranteed Savings

ESPCs are intended to pay for themselves. As guaranteed performance contracts, a key element of the guarantee is savings. It is imperative that, for every dollar paid to the contractor, there is an offsetting dollar of savings. That creates a special need to rigorously assure quality in every ESPC contract.

ESPC quality assurance (QA) is designed to assure, on the front end, that specified requirements for energy savings and equipment performance are delivered and, on the back end, that those requirements are measured and verified for as long as the contract is in place.

Mitigating Risk

While ESPC QA seeks to avoid risk, risk can never be totally eliminated. Therefore, an important part of ESPC QA is to identify risk factors and develop a plan to mitigate risk. This helps assure solid projects with minimal risk and where most of the risk is borne by the contractor. The government takes on only the risk that is appropriate and well understood before it enters into an ESPC.

ESPCs more clearly define and manage risk than typical government contracts. Risk is identified, allocated, and quantified through tools like the Risk, Responsibility, and Performance Matrix (RRPM). The performance is guaranteed in these projects and affirmed through measurement and verification (M&V). This permits an agency the ability to have clarity over a long period of time regarding the performance—a feature that is not a part of traditional government contracts.

DOE IDIQ ESPCs

The Federal Energy Management Program (FEMP) has developed comprehensive U.S. Department of Energy (DOE) indefinite delivery indefinite quality (IDIQ) ESPCs that include procedures and methods that facilitate the award and administration of successful task orders. The IDIQ ESPCs set forth overall terms and conditions that, when followed, conform with ESPC laws and regulations. Agencies can then award and administer task orders under these IDIQs that are tailored to meet their individual needs and rules.

Assistance and Training

FEMP assures quality through hands-on assistance, guidance, tools (including the IDIQ contract), training, and life of contract services. FEMP has a team of experts—federal project executives (FPEs) and project facilitators (PFs)—dedicated to ensuring that each project is a solid ESPC and a good deal for the agency.

This team provides services based on the processes and templates in the ESPC Project Development Resource Guide. Guidance is available for the risk management areas in an ESPC project as listed in the table below.

FEMP provides ESPC training in the following forms:

• Comprehensive classroom-style workshops
• Live webinars
• Recorded online courses.

A list of the on-demand online trainings is listed in the table below. See the FEMP Training Catalog for more information.

Guidance

DOE-approved PFs provide third-party guidance to agencies throughout the project development and implementation phases. During the performance period, FEMP life-of-contract services provide a summary of the annual M&V reports to agencies, help agencies that may need assistance reviewing their M&V reports, remind sites of upcoming M&V activities which require witnessing, and highlight performance issues which may require action.

Agencies award the task orders on the DOE IDIQ ESPC and are ultimately responsible for the quality assurance of the projects. An effective quality control plan for a project will include the following:

• A trained team
• Use and awareness of FEMP best management practices, resources, and tools by project staff
• Use of FPEs and PFs
• Baselines and savings analyzed by a PF—such as operations and maintenance (O&M) savings proposed—following FEMP best practices
• A sound M&V plan 
• Competitive financing
• Competitive subcontractor bids
• Price reasonableness in review of proposals
• Commissioning
• Witnessing of baseline measurements and M&V activities
• M&V review over time to assure performance (e.g., O&M savings review)
• Energy performance contract administration over the contract term training for the agency team—especially after staff turnover
• Resolution of issues that impact savings and contract adjustments as needed
• Oversight of government-provided O&M (retrained by the energy service company, logs provided, reviewed, and issues addressed), and resolution of issues in the M&V and life-of-contract reports
• Contract file and supporting documents for potential audit and staff turnover.

Agencies that includes these elements in their projects will mitigate risk. The above elements of a successful project go above and beyond what is required in a quality assurance surveillance plan and help ensure a project is performing as intended in an ESPC.

 Risk Management Area Resources