From lowering utility bills to modernizing buildings, reducing maintenance costs and improving the building environment for occupants, an Energy Savings Performance Contract (ESPC) project can prove incredibly valuable for most organizations, all with little or no cost to the client. Yet, ESPC projects can be complex and don’t always meet expectations. Selecting a good Energy Services Company (ESCO) and keeping some basic principles in mind will help make your ESPC a successful one.
Have a champion
Every successful ESPC needs a champion – someone who will maintain momentum and enthusiasm for the project within your organization. Ideally, this person has considerable influence within the organization and is an assertive advocate for the ESPC process. The strongest setback of an ESPC project is doing nothing – this can be overturned with the right people.
Be clear on objectives and criteria
What exactly are you trying to achieve? Most clients are looking to renew as much of their infrastructure as they can. In other words, they want to replace aging boilers, chillers, ventilation systems and controls. Some of these will have a very long payback, but if packaged with fast payback items like new lighting, the overall project can still make financial sense. It is very important that you understand exactly what you want to accomplish through the project, and communicate those expectations to your ESCO.
Pick a good ESCO
Selecting the right ESCO is THE critical element for the success of any ESPC. A poor ESCO will be unable to create the project you want, while a good ESCO can exceed your expectations and lead you to success.
Selecting an ESCO can seem like an intimidating process, especially if embarking on your first ESPC. By nature, ESPCs are design-build projects, not design-bid-build. In other words, your organization isn’t hiring an engineer to design a project, and then seeking bids from contractors to build it. Instead, you are engaging an ESCO to develop the project scope, price it, build it and stand behind the results. Because each ESCO will develop slightly (or very) different scopes, you cannot simply compare bid prices and pick the lowest.
In our experience, the best procurement process takes the form of a Request for Qualifications that looks something like this:
- A description of the ESCO, its track record of projects and their performance, and resumes of the personnel who will actually be assigned to your project.
- Proof of the ESCO’s financial strength, which usually takes the form of audited financial statements.
- An outline of what work the ESCO performs with its own forces, and what work it sends out to subcontractors. In general, a self-performing ESCO will complete projects faster and at lower cost since it avoids “markup stacking.”
- A simple, standard example project that gives the same basic cost and asks ESCOs to specify what markup they will apply, how much they will charge for project management, and what the total resulting cost would be. While just an example, it will provide some indication of the potential difference in pricing between ESCOs.
- A firm price to conduct an Investment Grade Audit (IGA), which develops the project in detail and gives the client a firm fixed price to build it.
- Other items that are important to your organization from a policy perspective, such as safety rating, use of small or minority businesses, etc.
Perhaps the most underappreciated detail of choosing an ESCO is to select someone that you enjoy working with. Your ESCO will be a critical partner for years, and it’s no fun working with someone you don’t like!
Get commitment from ALL stakeholders
If your organization is supervised by a board or council, make sure this body is kept up to date on the entire process, understands it and supports it. In addition, make sure that all relevant stakeholders are consulted during the development of the project. This includes key people in the facilities group, finance, capital planning, etc. It’s usually a good idea to invite several stakeholders to participate in the ESCO selection process to increase transparency.
Understand the Investment Grade Audit (IGA) report
IGA reports are complicated, brimming with technical details, financing strategies, explanations of maintenance roles, and more. Take the time to fully understand the contents of the report, asking questions and getting clarification on anything that isn’t clear. Make sure you understand exactly what is being requested from your organization in the way of assistance during construction, system maintenance, etc. before the project begins.
Assign a knowledgeable owner’s representative
The most successful projects have an owner’s representative with a deep understanding of the technical elements of construction as well as dynamics of the entire organization. This person should be a direct employee, not an external consultant.
Most importantly, any good ESPC project is a collaborative effort. Everyone should be on the same page and work together to solve problems as they arise. It is a smart idea to have a written statement of the project goals to which both parties commit in advance.
By paying attention to a few, simple tips and, above all, working collaboratively, your ESPC can be a great success for your organization.
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