During phase 3 of the Utility Energy Service Contract (UESC) process, the agency and utility 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, itemized prices, and agency payments.
Step 1: Agency Issues an Authorization for the Investment-Grade Audit
At this point in the process, the agency has received a utility-prepared preliminary assessment (PA) with initial recommended ECMs, savings, and pricing, and has decided to move forward with an investment grade-audit (IGA). Some agencies, depending on project size and scope or agency process will not require a PA, but will alternatively use an in-house or third party assessment for the initial project scope, and/or skip the PA and start with an IGA.
Under a GSA areawide contract (AWC), the energy management service authorization (EMSA) is used by the contracting officer to establish a bilateral agreement for energy management services. It is used to order available services such as the preliminary assessment (PA), and investment grade audit (IGA) and other energy services. The EMSA is specific to each utility and can be downloaded from the GSA website.
The next step is to authorize the utility to proceed with the IGA via an EMSA.
Step 2: Utility Conducts the Investment-Grade Audit
Conducted by the utility, the IGA provides the documented basis for the technical and price sections of the task order. The IGA augments, refines, and updates the PA data and provides the information needed to establish the energy and operations and maintenance (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 performance guarantee that cover the firm-fixed-price contractor payments.
The utility 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 utility efforts as project development begins. A true partnership between the agency and utility from this point forward is necessary to develop the best possible project. The agency should share all relevant information with the utility. The more details the utility 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 utility
- Assemble the IGA kickoff meeting agenda
- Schedule the kickoff meeting (approximately four hours) for the acquisition team and staff affected by the proposed ECMs.
At a minimum, the kickoff meeting should ensure that the agency and utility agree on:
- The schedule going forward
- Buildings included in scope
- Required ECMs
- Performance assurance planning
- Commissioning subplan
- O&M subplan
- Measurement and verification subplan
- Training subplan.
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: Utility Develops the Investment-Grade Audit Report and Performance Assurance Plan
The IGA is the basis for negotiating the final terms and conditions of the task order. The IGA provides a complete technical description of the project and the price proposal. The utility integrates IGA findings and the results of the financing acquisition with the requirements to produce the report for construction and installation.
The report 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.
The Performance Assurance Plan
The requirements for building the performance assurance plan must be developed by the agency and assigned to the utility via the task order (or areawide contract authorization for energy management services) for the IGA. The performance assurance plan deliverables should be project-specific and include the following elements and subplans.
- Design: Engineering analysis, design, operational strategy, and performance metrics.
- Commissioning plan: Plan with functional testing and written report (must be implemented and report received prior to acceptance - proving performance meets design specifications).
- Operations plan: Instructions needed to operate ECMs according to design specifications.
- Maintenance plan: Instructions needed to maintain ECM at design specifications for life of the ECM and term of the contract.
- Recommissioning plan: Activities, schedules, templates, and instructions to measure, verify, and document performance and savings.
- Comprehensive training: To prepare, agency (e.g., facility energy manager, operations and maintenance staff and or contractor), must address the ECM and each deliverable listed above. (Agency must know activities, schedules, metrics, etc. whether the implementation will be done in-house, as a requirement of the UESC, or as a third-party contract.)
Investment-Grade Audit Report Presentation
The agency hosts a meeting for utility presentation of the IGA report and proposal. The utility should 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 Begins Developing the Task Order for Construction and Installation
The agency begins drafting the task order for construction and installation as results from the IGA become available. The initial draft will include the purpose, scope of work (including the project’s parameters and individual energy conservation measures), performance assurance plan, acceptance requirements and financing strategy, and more. The draft will be refined as the IGA is completed and project details are finalized.
The acquisition team and any supporting organizations need to be prepared to review the IGA report. The team should be prepared to thoroughly review the entire report and deliver comments to the utility on schedule.
Generally, the first step is to perform a cursory review to ensure the report addresses all the required information. If report contents are deficient, the team should promptly notify the utility and request the missing elements, or have the utility resubmit the entire report.
The agency's careful review of the IGA report and performance assurance plan 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 utility, the utility will respond, and a resolution will typically lead to a revision in the task order.
Energy Conservation Measure Descriptions
The heart of the IGA report 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 IGA report format requires utilities to provide detailed engineering calculations to support the basis for savings for each ECM. The utility 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 IGA report. Reviewers should ensure that each energy and cost savings estimate is properly identified and documented. The unit cost of energy for each fuel source and utility rates must be mutually agreed upon by the utility and agency—including current unit costs and rates and the utility rates used to value savings throughout the years of the UESC.
Reviewing energy savings includes:
- Reviewing the utility'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
- 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 Federal Energy Management Program (FEMP) UESC 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.
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 U.S. Department of Energy 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 utility must provide the unit cost of fuel for each source.
Operations and Maintenance Savings
UESC payments can come from energy-related cost savings, which generally result from reduced O&M expenses. Savings for labor and materials are acceptable.
O&M savings are derived as energy savings are derived. The utility typically quantifies what is currently being spent on O&M activities for pre-retrofit conditions. This can be done by reviewing O&M logs provided by the ordering installation. Then the utility 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 post-retrofit 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 utility O&M savings estimates comply with FEMP and agency guidance on acceptable O&M savings. Agencies must be able to prove that savings are real and verifiable. FEMP provides a resource to help identify O&M savings titled How to Determine and Verify Operating and Maintenance Savings in Energy Savings Performance Contracts.
Step 5: Agency and Utility Negotiate the Final Task Order for Installation
The agency’s contracting officer is responsible for a determination of fair and reasonable pricing. The Federal Acquisition Regulation requires completing a thorough review of project costs and pricing, including:
- Project development costs
- Construction costs
- Rebates and incentives
- Performance period costs.
Evaluating competitive bids is essential to determining fair and reasonable pricing. Other FAR techniques include comparing proposal prices to similar projects, reviewing published prices, and market research. The utility will submit a comprehensive proposal and any remaining technical and price issues will be addressed in negotiations led by the agency contracting officer. All agreements must be incorporated into the task order to be considered binding.
Finalizing the Task Order
Before being finalized, the task order must be revised to incorporate changes resulting from ongoing discussions and negotiations leading up to award. The final task order supersedes all prior versions and must be updated to reflect the final negotiated terms and conditions of the award.
Step 6: Agency Finalizes the Justification and Approval
If an agency requires a Justification for Other than Full and Open Competition (J&A), it can now be finalized with information that includes determination of fair and reasonable pricing and the total dollar value of the acquisition.
Step 7: Agency Awards the Task Order for Installation
The task order incorporates the UESC contract and includes the agency’s final task order language. The task order is signed by the agency contracting officer.
The task order for design and installation will define the requirements that must be met by the utility before the project is awarded. These requirements include completing the "business clearance memorandum" or "recommendation to award," receiving the utility proposal with the finance package, and agreeing to the finance term.
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.