During phase 3 of the energy savings performance contract (ESPC) process, the agency and energy service company work to develop and award a task order. The task order includes descriptions of the energy conservation measures (ECMs); baselines; and financial schedules that show estimated savings, guaranteed savings, itemized prices, and agency payments.
The U.S. Department of Energy's (DOE) indefinite-delivery, indefinite-quantity (IDIQ) ESPC sample contract sections H.5 and H.6 address two major parts of the task order: the investment-grade audit (IGA) and the proposal.
Step 1: Agency Issues a Task Order Request for Proposal
DOE IDIQ ESPCs are intended to be flexible and accommodate the particular requirements of the ordering agency. The purpose of the task order request for proposal (TO-RFP) is to tailor the IDIQ contract to the agency's needs and circumstances by modifying, adding to, or deleting IDIQ contract terms. Ideally, the agency will give the TO-RFP to the selected ESCO at the same time the notice of intent to award is issued.
The TO-RFP incorporates all necessary agency-, site-, and project-specific standards; procedures; functional requirements; terms; and conditions into the IDIQ and communicates these requirements to the energy service company (ESCO). Some provisions must be addressed in the TO-RFP to include agency-specific information, such as contact information and invoicing procedures.
The TO-RFP generally specifies how operations and maintenance (O&M) and repair and replacement (R&R) are to be handled; special environmental, safety, and health requirements; and compatibility requirements for design drawings (among other requirements).
The terms of the TO-RFP and the task order override the terms of the IDIQ contract as long as they remain within the IDIQ scope, period of performance, and contract ceiling. Only one TO-RFP is issued by the agency to the selected ESCO and results in only one proposal.
The task order request for proposal should indicate the subcontracting goals the agency wants the ESCO to meet in the task order. The IDIQ contract includes a master subcontracting plan for each ESCO, which establishes overall goals required for all task orders issued against the contract. The agency contracting officer or acquisition team, however, may establish achievable goals for the project task order efforts based on the composition of the project. At this point, the project will be sufficiently defined to permit identification of the subcontracting goals.
Revision of the Task Order Request for Proposal
The TO-RFP will evolve with project development, as it documents the agency's ongoing discussions with the ESCO. Before being incorporated into the final task order, the RFP must be revised to incorporate changes in the IGA and proposal that results from ongoing discussions and informal negotiations that lead to a final task order and award.
Task Order Request for Proposal Template
The Federal Energy Management Program (FEMP) provides a TO-RFP template to minimize the time and effort required to develop a TO-RFP. The template identifies the IDIQ provisions that usually require additions or amendments to specify agency-, site- or project-specific requirements. Using the template precludes the need to review the entire IDIQ contract to determine what should or must be addressed in the TO-RFP.
Only the contract provisions that need altering or supplementing need to be addressed in the TO-RFP. Any provision of the ESPC may be altered, unless alteration is specifically prohibited. The project facilitator will help draft the TO-RFP.
Step 2: Energy Service Company Conducts the Investment-Grade Audit
At this point in the process, the agency has received an ESCO-prepared preliminary assessment (PA) with initial recommended ECMs, savings, and pricing. The notice of intent to award has been issued, and the draft TO-RFP has been provided to the ESCO. The next step in the process is the investment-grade audit.
Conducted by the ESCO, the IGA provides the documented basis for the technical and price sections of the proposal, including the guarantee. The IGA augments, refines, and updates the preliminary assessment data and provides the information needed to establish the energy and O&M baselines and update the feasibility analyses of the ECMs under consideration. IGA data are used to verify or adjust the estimated annual cost savings and to confirm the contractor's ability to structure a project with an acceptable term and guaranteed annual cost savings that cover the firm-fixed-price contractor payments.
The ESCO usually sends a team of engineers led by a senior project developer to perform the IGA of facilities and energy systems at the project site. The agency is expected to provide an escort and/or arrange for access to the buildings to be surveyed.
Investment-Grade Audit Kickoff Meeting
The IGA kickoff meeting is essential for coordinating agency and ESCO efforts as project development begins. A true partnership between the agency and ESCO from this point forward is necessary to develop the best possible project. The agency should share all relevant information with the ESCO. The more details the ESCO has, the better it can address the agency’s needs.
To prepare for the IGA kickoff meeting, the agency should:
- Review the PA with staff affected by the proposed ECMs
- Share (through the contracting officer) the agency’s review of recommended ECMs with the ESCO
- Provide the TO-RFP to ESCO for review
- Assemble the IGA kickoff meeting agenda
- Schedule the kickoff meeting (approximately 4 hours) for the acquisition team and staff affected by the proposed ECMs.
At a minimum, the kickoff meeting should ensure that the agency and ESCO agree on:
- The schedule going forward
- Buildings included in scope
- Required ECMs
- General O&M approach
- General measurement and verification approach
Investment-Grade Audit Midpoint Review
The purpose of the midpoint review is to check in on the IGA and project status. It is an opportunity for the agency to ask questions and learn what has been determined by the IGA.
Step 3: Energy Service Company Develops the Investment-Grade Audit Report and Proposal
The ESCO proposal is the basis for negotiating the final terms and conditions of the task order. The proposal provides a complete technical description of the project and the price proposal. The ESCO integrates IGA findings and the results of the financing acquisition with the requirements stated in the IDIQ and TO-RFP to produce the proposal.
The proposal addresses the considered ECMs and their feasibility, energy savings calculations, rationale for ECM selection, costs to implement each ECM with detailed backup information, and savings of each ECM with detailed supporting data.
Investment-Grade Audit/Proposal Presentation Workshop
The agency hosts a meeting for ESCO presentation of the IGA report and proposal. The project facilitator encourages the ESCO to send the IGA and proposal to the agency two weeks in advance of the workshop to allow time for a first-look review and discussion.
Step 4: Agency Evaluates the Investment-Grade Audit Report and Proposal
The proposal represents the culmination of work performed by the ESCO during the IGA and project development. In addition to IGA findings, the proposal captures the requirements specified by the ordering installation in the TO-RFP. The proposal format can also be specified in the TO-RFP.
The acquisition team and any supporting organizations need to plan for the review. The team should be prepared to thoroughly review the entire proposal and deliver comments to the ESCO on schedule.
Generally, the first step is to perform a cursory review to ensure the proposal addresses all the required information. If proposal contents are deficient, the team should promptly notify the ESCO and request the missing elements or have the ESCO resubmit the entire proposal.
The agency’s careful review of the IGA report and proposal is critical in preparing for negotiating the final task order and ensuring that the agreement is a good business deal for the government. A thorough and systematic review before accepting the offer is imperative.
As reviews and discussions continue before the award, the agency will provide comments to the ESCO, the ESCO will respond, and a resolution will typically lead to a revision in the proposal.
The next step in the process is for the agency to review the technical proposal, which includes:
- ECM descriptions
- ECM performance measurement
- Measurement and verification plan, energy and O&M baselines, commissioning approach
- Management approach
- Organization; risk, responsibility, and performance matrix; O&M; R&R, training.
Energy Conservation Measure Descriptions
The heart of the proposal is in the work scope, which includes ECM descriptions. From reading the ECM descriptions, reviewers should gain a basic understanding of current practices, recommended actions, and how energy savings will be achieved. Complete and understandable ECM descriptions should specify:
- Location (building, area within building, floor area)
- Potential interfaces with government equipment
- Information about brand, model, and size, including catalog cut sheets
- All utility interruptions or physical changes to equipment or facilities that are required to implement ECMs.
Review of Energy Conservation Measure Energy and Cost Savings
The proposal format requires ESCOs to provide detailed engineering calculations to support the basis for guaranteed savings for each ECM. The ESCO should compile these supporting calculations in a logical format that starts with methodology, then proceed to assumptions, followed by the calculations. After the review team is satisfied with the reasonableness of the energy savings calculations for each proposed ECM, they should review cost savings calculations.
Traceability of energy and cost savings is critical in the review of the proposal. Reviewers should ensure that each energy and cost savings estimate is properly identified and transferred to Schedule Task Order 4 (TO-4) of the price proposal.
The unit cost of energy for each fuel source and utility rates must be mutually agreed upon by the ESCO and agency—current unit costs and rates and the utility rates used to value savings throughout the years of the ESPC.
Reviewing energy savings includes:
- Reviewing the ESCO's basis for energy savings and determining if it is reasonable, and checking the percentage savings compared to the baseline and determining whether it is realistic
- Reviewing the proposed methodology for calculating savings and determining if it is based on sound engineering principles
- Reviewing proposed assumptions and determining whether they are realistic.
Reviewing Engineering Calculations and Assumptions
The credibility of the savings estimates depends on the assumptions used to derive them. Review of assumptions and calculations should be documented. The government reviews of assumptions and calculations establish that:
- The rationale and basis for savings are reasonable
- Assumptions are based on sound engineering principles
- Calculations are correct.
First review the engineering calculations. On a large spreadsheet-based calculation (common with lighting upgrades) spot checks can satisfy this requirement. It is highly recommended that a representative calculation that demonstrates what the spreadsheet is doing internally be included in the discussion of the spreadsheet.
Two types of assumptions must be reviewed: those related to operations and those related to performance.
Operations-related assumptions deal with occupancy, operations schedules, temperature set points, and large internal loads. Generally building tenants can reliably corroborate or correct these assumptions.
Performance-related assumptions deal with equipment efficiencies and equipment loading. Engineering representatives on the acquisition team, project facilitators, or FEMP ESPC team specialists are typically best qualified to validate these assumptions. The agency must review all assumptions for acceptability to ensure projected energy savings will be achieved.
If the ESCO provides energy savings calculations in the form of a building energy simulation model, the input and output data should be reviewed for reasonableness. To allow for an independent review of the model, the agency should require the ESCO to provide input and output files, preferably on disk along with the proposal.
Operational and performance-related assumptions should be extracted and reviewed for reasonableness, and the accuracy of the baseline model should be verified. FEMP recommends that FEMP technical resources from the DOE national laboratories should be consulted for review of nonstandard ECMs. Reviewers must ensure that the correct rate is applied and the arithmetic is correct. At minimum, the ESCO must provide the unit cost of fuel for each source on Schedule TO-4.
Spreadsheets and Building Energy Simulations
Spreadsheet calculations should include a stand-alone sample that documents the workings of the spreadsheet. Building energy simulations are an acceptable way to document annual energy savings. Energy simulations in proposals should be supported with input and output data. To facilitate independent verification of a model’s accuracy, the agency can require input and output data to be provided with the proposal.
Operations and Maintenance Savings
ESPC payments can come from energy-related cost savings, which generally result from reduced O&M expenses. Savings for labor and materials are acceptable. For more information, see the Practical Guide to Savings and Payments in FEMP ESPC Task Orders.
O&M savings are derived as energy savings are derived. The ESCO typically quantifies what is currently being spent on O&M activities for preretrofit conditions. This can be done by reviewing O&M logs provided by the ordering installation. Then the ESCO determines O&M costs for the proposed equipment, typically by applying time and labor costs to the equipment manufacturer’s recommended preventive maintenance procedures.
The reviewer may be able to evaluate the baseline determination by thoroughly reviewing O&M log data and validating the postretrofit costs using RSMeans data pertaining to actual task descriptions, frequency, and duration of tasks and the probability of large-scale failure or repair.
Reviewers should verify that ESCO O&M savings estimates comply with FEMP and agency guidance on acceptable O&M savings.
Review of Energy Service Company's Management Approach in the Technical Proposal
Information in this section of the proposal includes:
- The ESCO’s organizational structure
- Risk, responsibility, and performance matrix (RRPM)
- Proposed level of O&M and R&R services for the performance period
- Project timeline
- Small business subcontracting plan (if required by the agency).
Each of these components should be reviewed carefully because they will form the contractual basis for the performance period of the contract. Be sure sufficient detail is included. Someone may read the contract in five years and need to understand who is responsible for each piece of equipment.
Consider the following review criteria for the ESCO management approach.
- The RRPM and all other proposal contents are consistent.
- The project management approach and timeline are well suited for successful project implementation.
- The O&M plan addresses site requirements.
- The R&R responsibilities address site requirements.
Step 5: Agency and Energy Service Company Negotiate the Final Task Order
Negotiations to an ESPC task order award have informal and formal aspects. Informal negotiations are ongoing, beginning with the first kickoff meeting and continuing through the development of the proposal as the ESCO and agency discuss project details and agency needs and preferences. Most of the issues regarding technical matters, such as selection of equipment and O&M responsibilities, are generally settled in these informal, ongoing communications, which should be reflected in the proposal. The agency and ESCO agree about any remaining technical and price issues in negotiations led by the agency contracting officer. All agreements must be incorporated into the ESCO’s proposal, the TO-RFP, or both, to be considered binding.
Updating the TO-RFP for the Final Task Order
Before being incorporated into the final task order, the TO-RFP must be revised to incorporate changes in the IGA and proposal resulting from ongoing discussions and informal negotiations leading up to a final task order and award. The TO-RFP supersedes other terms and conditions and must be updated from a solicitation document to one that reflects the final negotiated terms and conditions of the task order award.
Step 6: Agency Awards the Task Order
The task order incorporates the DOE IDIQ ESPC and includes the agency’s task order document, the final TO-RFP, the ESCO's revised proposal, and a subcontracting plan. The task order is signed by the agency contracting officer. For more information, see section H.3 of the DOE IDIQ ESPC sample contract.
The IDIQ defines several requirements that must be met by the ESCO before the task order is awarded. Completing the IGA, revising the ECM feasibility analysis, delivering the proposal, and negotiating in good faith to a final accepted task order are among these requirements. The ESCO must also provide evidence that financing and bonding (if required) are committed (IDIQ sections. H.8 and H.10).
Agency Contract Clearance Reviews and Approvals
Agency contracting officers will need to obtain the required approvals and contract clearance reviews and complete file documentation consistent with their own agency’s procedures.
Authorization from the DOE IDIQ ESPC Contracting Officer
The agency contracting officer notifies the DOE IDIQ ESPC contracting officer (at the DOE Golden Field Office) of the intent to award and provides copies of the task order. The DOE IDIQ ESPC contracting officer reviews the task order for compliance with IDIQ scope, ceiling, and period of performance and sends a letter authorizing the agency to award.
Phase 3 FEMP Assistance and Resources
FEMP's roles in phase 3 of the ESPC process include:
- Facilitating kickoff and review meetings as needed
- Engaging technical resources as needed for specialized technologies, pricing, and related items
- Reviewing and providing comment on the IGA and proposal.
FEMP also provides resources to help agencies complete phase 3 of the ESPC process.