Performance Contracting Consulting

Performance contracting as a business tool is valuable for building owners and particularly valuable for public entities. Performance contracting provides for facility infrastructure improvements, reduction in maintenance costs, reduction in energy and resource costs, provides greater comfort and environmental stability, and improves facility cash flow. Performance Contracts must have a solid foundation in energy engineering, include accurate baselines of building operational characteristics, and be managed by building owners with reasonable expectations. When properly performed, performance contracts exceed savings or cost avoidance projections and meet the objectives of reducing costs, increasing comfort, and replacing aging infrastructure elements. Risk of non performance is assigned to the ESCO (Energy Service Company) through an explicit or implicit performance guarantee which protects the owners’ cash flow stream and / or guarantees debt coverage. Proper documentation and communication of expectations, baselines, risk assignments and remedies in the contract documents will provide guidance and clarity to successors of the original contract executors. Sometimes performance contracts are incubated in an environment of high expectations and unbridled optimism on the part of both the ESCO and the building owners. When this is coupled with a lack of proper contract documentation and realignment of expectations of both owner and ESCO, significant contract disputes and / or antagonistic actions by either party becomes potential.

VSEnergy professionals are familiar with all aspects of performance contracting. This includes ESCO selection, Energy Engineering, Cash Flow Analysis, Measurement and Verification, and Guarantee reconciliation. VSEnergy can provide consulting assistance from project inception through reconciliation. Also, VSEnergy will provide consulting services in any phase of contract implementation as well as forensic review and baseline adjustment for post implementation guarantee reconciliation or shortfall analysis.

RFP / RQP Preparation

VSEnergy will prepare or assist in the preparation of a Request for Proposal (RFP) or Request for Qualifications (RFQ) for a performance contract based upon the specific needs assessment of a building or campus. VSEnergy will provide a physical plant assessment for integration with the long term plan of the facility or campus. The determination of financing options will be included in the phase for review by the owner / owner committee. After the owner review and concurrence an RFP or RFQ will be generated for solicitation of responses from ESCOs.

Response Review

VSEnergy will provide evaluation assistance during the vendor review and interview process. This evaluation assistance will include feasibility review of projects from an engineering perspective (i.e. can the project be built). Sensitivity analysis of savings claims and impact upon project debt service will be reviewed and modeled. Standard performance metrics will be applied to the cash flow projections provided by the vendors to allow owner comparison of projects proposed by multiple vendors. VSEnergy will conduct ESCO interviews with owner representatives.

Contract Review

VSEnergy will provide standard contract documents for use by the owner, or review vendor provided contracts to assure that there is adequate performance assurance for the owner, overall risk mitigation, and high probability of project success. This contract review phase provides the basis for future dispute resolution and settlement. More important than dispute resolution though, the contract will define specific responsibilities of both the ESCO and the owner or building manager. Responsibilities for the ESCO may include but are not limited to monthly savings reports, maintenance tasks on specific equipment, training. Responsibilities for the building manager or owner will include but are not limited to delivery of utility bills, reporting changes in building use, modifications to the building such as window changes, mechanical system changes. Proper contract construction reduces the potential for disputes by defining deliverables, preparing for probable changes in facility usage, transfer, and giving clear remedial direction for both the ESCO and the owner.

Project Installation Management

VSEnergy will work as the owner’s representative to assure that Energy Conservation Measures (ECMs) or Resource Conservation Measures (RCMs) are installed properly, meeting the design intent for operating cost reductions, code compliance and maintenance ease. Change order requests will be reviewed for ECM impact, as well as fiscal prudence. As the owner’s representative, VSEnergy will diligently document all project installation meetings with minutes, and appropriate modification of energy baselines if changes are made to the project during the installation process.

Commissioning or Commissioning Oversight

VSEnergy will either perform the project commissioning process, or oversee the commissioning process if performed by the ESCO. This critical commissioning process is the in operation demonstration of the mechanical, electrical, and any other building systems to show compliance with the design intent.

Measurement and Verification

VSEnergy will either provide or oversee the measurement and verification (M&V) process. The M&V process begins with the construction of the project M&V plan. This plan is constructed during the RFP and design phase of the project. The M&V plan specifies the methodology (Method A,B,C,or D, according to the IPMVP), variables to be measured, expected outcome, and adjustments to be made if any. The M&V process is also integrated into the installation phase of the project so that if necessary, any auxiliary metering (either stand alone or integrated into the Energy Management System) may be installed and commissioned for use during M&V. The M&V plan will also specify the frequency of reporting (typically quarterly for smaller projects, and monthly for larger or federal projects) and reconciliation (typically annually).

Remediating Failed Performance Contracts

An article by Mark Sankey, M.B.A., C.E.M., Vice President of VSEnergy, Inc.