Federal ESPC Process Phase 4: Project Implementation and Construction

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Phase 4 of the energy savings performance contract (ESPC) process focuses on project implementation and construction. At this point, an ESPC project is much like any other construction project. In fact, the U.S. Department of Energy’s (DOE) indefinite-delivery, indefinite-quantity (IDIQ) ESPC contains the Federal Acquisition Regulations clauses that normally appear in any government construction project.

The main differences between an ESPC and a conventional construction contract are the requirements for commissioning and post-installation measurement and verification (M&V), although commissioning is becoming a standard practice. The DOE IDIQ ESPC specifies that project acceptance cannot be completed until the equipment’s performance is proven by M&V activities and documented in the post-installation M&V report, which is the energy service company’s (ESCO) first formal M&V report for the agency. 

Project design is generally 40% to 70% finished before the award is made. The design must be finished and all submittals reviewed and approved by the agency before the ESCO can proceed with construction. 

Phase 4 at a Glance
Step 1: Agency and ESCO Hold a Post-Award Conference
Step 2: ESCO Finalizes Project Design and Submittals for Agency Review
Step 3: ESCO Handles Construction, Inspections, Documentation, and Training
Step 4: Agency Completes Post-Installation Inspections and Verifications
Step 5: Agency Inspects the Installation and Construction and Accepts the Completed Project
Step 6: Agency Prepares for ESPC Administration
Phase 4 FEMP Assistance and Resources

Step 1: Agency and ESCO Hold a Post-Award Conference

A post-award conference is recommended to ensure a strong working relationship between the agency and the ESCO and to secure successful contract performance. Conference attendees should include the following people from the agency and the ESCO.

AgencyESCO
  • Contracting officer
  • Contracting officer technical representative
  • Technical teams 
  • Inspectors
  • Other team members
  • Project manager
  • Design, construction, commissioning, M&V, and performance-period services managers
  • Important subcontractors

 

The objectives of the post-award conference are similar to those of earlier kickoff meetings:

  • Review roles, responsibilities, expectations, timelines, and communication protocols
  • Review schedules for design and construction 
  • Establish protocols for site access and submittal review.

 
During this conference, the agency and ESCO will review details about contract requirements including:

  • Energy conservation measure (ECM) installation
  • Post-installation inspections
  • Commissioning
  • Training
  • Acceptance
  • Other aspects of contract performance.

Step 2: ESCO Finalizes Project Design and Submittals for Agency Review

The ESCO completes the project design and provides the design and construction submittals to the agency within the timeframe specified in the proposal. This includes:

  • Designs and drawings
  • Installation plans and schedules
  • Quality control inspection plan
  • Permit plan and schedule.

The design and construction submittals provide detailed information the agency can use to confirm that the ECMs will be installed in a manner that complies with contract requirements. The ECMs must be as described in the proposal and must meet the design and construction standards in the contract.

The ESCO’s designs, plans, and schedules must be approved before construction can begin. The process for submittal and review of the ESCO’s designs and construction and installation plans is defined in section C.5 of DOE IDIQ ESPC sample contract, as supplemented by the task order.

The ESCO’s submittals constitute requirements of the contract after approval by the agency (per section C.5.1 of the DOE IDIQ ESPC). Designs, equipment selections, and construction plans must conform to the standards given in sections C.5.1 and C.5.2 of the DOE IDIQ ESPC. However, acceptance of the project does not relieve the ESCO from responsibility for meeting facility standards of service and guaranteed cost savings per section C.5.1.A of the DOE IDIQ ESPC.

Agency Review and Approval of Submittals

The agency contracting officer technical representative (COTR) will review the design to confirm that: 

  • It complies with requirements in the task order
  • It clearly addresses ECM interfaces with government equipment
  • The drawings particulars (legends, format, size, and engineering stamp requirements) are in accordance with the task order. 

The review should confirm the locations of ECM installations, schedule, acceptable planned service interruptions, requirements for space access, inclusion of a health and safety plan, and installation working hours. The COTR will review the ECM quality assurance plan for acceptable logs and reports and a proposed approach for inspections of ESCO and ESCO subcontractor work. The review lead will also verify the schedule for equipment and system tests with the ESCO contact. 

Any deficiencies in the installation plan should be communicated to the ESCO in writing for resolution and submittal of revised installation plans. Upon acceptance of final installation designs and plans, the COTR should notify the contracting officer in writing of approval.

Notice to Proceed with Installation and Construction

The agency contracting officer transmits a notice to proceed with ECM installation and construction to the ESCO indicating that construction can commence after pre-award requirements are met.
 
The contracting officer must receive acceptable performance and payment bonds (as required), as well as any required insurance certificates before construction begins. (See Post-Award Deliverables Sample)

Step 3: ESCO Handles Construction

Before and during ECM installation, the ESCO provides the agency with required documents concerning installation procedures such as a quality assurance plan, notification of work outside regular hours, planned utility outages, and ECM testing.

The agency is responsible for monitoring the ESCO's progress during ECM installation to ensure that the work is proceeding as planned. This includes:

  • Monitoring ECM installation activity
  • Reviewing and verifying construction quality assurance plan logs
  • Coordinating space access to prevent delays in installation
  • Verifying proper ECM installation per task order requirements, design/installation plans, and approved submittals
  • Working with the COTR to generate punch lists as applicable.

A best practice is to hold regularly scheduled progress meetings with the ESCO and agency teams. The attendance of the ESCO's site superintendent should be required so issues can be addressed.

Step 4: Agency Completes Post-Installation Inspections and Verifications

The agency (generally the COTR) is responsible for post-installation inspections and verifications. This includes:

  • Coordinating inspections of rebate-related ECMs with the ESCO and utility
  • Verifying completion of construction punch list items
  • Verifying that any revised post-installation submittals are acceptable
  • Coordinating agency staff operations and maintenance (O&M) and repair and replacement training with the ESCO 
  • Reviewing post-installation M&V report
  • Verifying resolution of any ECM performance deficiencies.

Reviewing ESCO deliverables

The agency is responsible for verifying receipt of and reviewing the following ESCO deliverables:

  • Spare parts lists, spare parts provided
  • Manufacturer warranties
  • ECM training materials and proposed training schedule
  • Commissioning report 
  • Post-installation M&V report.

Commissioning

The purpose of commissioning is to verify that the ECMs have been installed properly, functioning properly, and are providing the services (such as lighting levels and space temperatures) that are specified in the task order.

Most of the commissioning is done before acceptance, but other performance checks may be required by the ESCO after agency acceptance of ECM installation. 

A commissioning report from the ESCO is required (section C.5.4 of the DOE IDIQ ESPC). Agency review of this report should verify:

  • ESCO compliance with the commissioning plan
  • Commissioning results meet or exceed design intent and facility performance requirements
  • Seasonal testing required at later date.

ESCO Post-Installation Measurement and Verification Report and Agency Review

Agency review of the post-installation M&V report should verify that: 

  • The ESCO’s post-installation M&V complies with M&V plan
  • Energy and O&M baseline data are consistent with agreed-upon baseline conditions 
  • Energy rates for the first year of performance period are as specified in the task order
  • Installed ECMs have the potential to meet or exceed the guaranteed annual cost savings.

Government Witnessing of Commissioning and Measurement and Verification

The agency should witness ECM commissioning and M&V tests to independently verify performance. The tests should focus on:

  • Critical systems
  • ECMs generating the most energy and cost savings
  • Sampling proper installation of ECMs.

Step 5: Agency Inspects Installation and Construction and Accepts the Completed Project

The timeframe for review and project acceptance is based on the schedule of activities specified in the task order. The agency is obligated to perform its oversight and review in the timeframes described in the M&V plan. If agency tardiness delays project acceptance and on-schedule payments to the ESCO, the ESCO may incur significant additional costs for which the agency may be liable.

The ESCOs are generally highly motivated to resolve issues and achieve the agency’s acceptance, acknowledging that all requirements of the contract have been met so payments can begin. 

One final walk-through should be conducted with the agency COTR or other designated government representative. The ECMs should be fully operational, without performance problems, and all other required submittals should have been provided. The acceptance checklist is noted with dates for each item, signed off by the COTR, and forwarded to the contracting officer.

See Guidelines, Checklist, and Contract Clauses for Government Acceptance of ESPC Projects for a sample checklist agencies can use for acceptance of completed ECM installation.

Agency Acceptance Responsibilities

Before the agency may proceed to project acceptance, the agency COTR needs to confirm that:

  • ECM installation has been accomplished as required, including resolution of punch list items
  • ECMs have the potential to generate the guaranteed cost savings
  • All required post-construction drawings and submittals have been received and revised as needed to meet contract requirements.

The agency contracting officer indicates agency acceptance of the installed project by written notice to the ESCO. This includes a signed copy of the completed acceptance checklist. The notice:

  • Confirms that the project complies with all task order requirements
  • Advises that the ESCO may submit the first invoice
  • Begins the post-acceptance performance period.

The contracting officer may issue a conditional letter of acceptance if seasonal testing is required for ECMs as documented in the commissioning or post-installation M&V reports.

Acceptance of Individual Energy Conservation Measures (Partial Acceptance)

Individual ECMs completed early in the implementation period may be provisionally accepted before final acceptance of the completed project. 

Most projects have ECMs that are installed, tested, and operational relatively early in the implementation and construction period. Sign-off by an agency COTR does not constitute official agency acceptance of the ECM or the project. Rather, it acknowledges completion of the installation of that ECM and perhaps activates the warranty. 

Early acceptance of individual ECMs, or "partial acceptance," is common in projects with one or two ECMs that have very long construction periods, other projects that have shorter construction periods, or projects with several sites involved. Agencies can reduce their interest cost by making payments based on savings from provisionally accepted ECMs before project acceptance. These implementation-period payments must be specified in Schedule Task Order 1, per the DOE IDIQ ESPC.

Changes or modifications during construction are less common with ESPC projects than with business-as-usual construction contracting but are sometimes needed. It is difficult to anticipate all requirements, and additional information may surface during installation.

As-built drawings (blueprints, utility lines) and submittals will reflect the project as approved and actually completed. As-built drawings and documentation are required by the contract and are needed to keep the facility’s records of current facility conditions accurate. The agency should also record the ESPC project’s impacts in its organization’s real property database.

Variances between design and installation are found in most projects. Details of the variations between the task order and as-built conditions are customarily recorded in the post-installation M&V report, which includes energy impacts.

The contracting officer (not just the COTR) must authorize any changes, and all changes should be reviewed and agreed upon in advance of the change. Contracts should be modified to reflect the changes. Generally all parties prefer to handle changes in ways that do not require renegotiation of the firm-fixed price that cause a corresponding effect on and renegotiation of the project financing. It is important that the ESCO and agency come to agreement quickly so project acceptance and payments are not unduly delayed.

Step 6: Agency Prepares for ESPC Administration

Throughout the ESPC project’s performance period, there will inevitably be turnover in personnel and other changes that could challenge the agency’s consistency in ESPC administration. Preparation will help bridge the changes.

Ensure that all project documents are kept and maintained with the contract file so they will be available throughout the contract term, especially M&V and commissioning data and reports, O&M manuals, and O&M training materials.

Follow the contract management plan, which ensures the continuity of contract administration as individuals come and go. Prepare the plan at task order award and modify it as necessary during construction and after project acceptance.

Phase 4 FEMP Assistance and Resources

Graphic that reads Get Resources, ESPC Phase 4.

FEMP's roles in phase 4 of the ESPC procurement process include:

  • Providing technical resources for support with advanced technologies
  • Helping to resolve performance issues
  • Reviewing the post-installation M&V report.

FEMP also provides resources to help agencies complete phase 4 of the ESPC process.

Next Phase

During phase 5 of the ESPC process, the ESCO delivers the savings and equipment performance, as contracted, and conducts the annual M&V activities described in the M&V plan. See Phase 5: Post-Acceptance Performance.