During phase 2 of the energy savings performance contract (ESPC) process, the agency selects an energy service company (ESCO) to proceed with project development. The selection process includes notifying all indefinite-delivery, indefinite-quantity (IDIQ) ESCOs of the opportunity, reviewing ESCO responses, and down-selecting to two or more ESCOs, then further down-selecting to one ESCO to perform a preliminary assessment.
The ESCO’s submission of a preliminary assessment is a first-cut look at a feasible project that will pay for itself from savings. At the end of phase 2, assuming an acceptable preliminary assessment is submitted, the agency issues a notice of intent to award to the chosen ESCO.
|Phase 2 at a Glance|
|Step 1: Agency Chooses an ESCO Selection Method|
|Step 2: Agency Issues a Notice of Opportunity|
|Step 3: Agency Considers the ESCO’s Preliminary Assessment|
|Step 4: Agency Issues a Notice of Intent to Award|
|Phase 2 FEMP Assistance and Resources|
Step 1: Agency Chooses an Energy Service Company Selection Method
Section 828 of the National Defense Authorization Act of 2011 made it simpler for agencies to select an ESCO. The U.S. Department of Energy (DOE) ESPC IDIQ (section H.3 Procedure for Awarding Task Orders) incorporates these simplified selection procedures consistently with the law. This law establishes that fair opportunity can be provided by selecting based on either qualifications or preliminary assessments (PAs). That is, one ESCO may be chosen based on qualifications (agencies do not need to receive more than one PA to make a selection).
The Federal Energy Management Program (FEMP) encourages agencies to use the "selection-by-qualifications" (SBQ) method because it saves considerable time and resources and ensures a selection that will serve the agency's needs.
The SBQ method requires agencies to issue a notice of opportunity (NOO) to all 16 DOE IDIQ contract holders to provide a fair opportunity for all to be considered. Based on the ESCOs' responses to the NOO, the agency down-selects to two or more ESCOs. The agency typically meets with these ESCOs, then down-selects to one ESCO, which will submit a PA.
Step 2: Agency Issues a Notice of Opportunity
Agencies tailor the NOO to their own projects and requirements. The contracting officer is given broad discretion in this process, and the agency should ask for whatever information it needs to make its decision. However, this is a winnowing step, so the best practice is to keep the notice brief, require basic information about the ESCOs' qualifications, and limit the expense of this step to all parties. All 16 ESCOs are prequalified under the DOE ESPC IDIQ contract. Each is capable of managing projects and implementing energy conservation measures (ECMs). Selecting an ESCO is about forming a working relationship that will endure through the life of the contract. Learn more about DOE ESPC IDIQ ESCOs.
Use FEMP's ESCO Selector tool to create a NOO that complies with federal requirements and meets agency needs. The tool produces a NOO in a format that can be edited as needed.
Step 3: Agency Considers the Energy Service Company’s Preliminary Assessment
The PA is a high-level description of a feasible project based on the ESCO's walk-through audit and information provided by the agency.
The goals of the ESCO's PA are to assess whether the site presents an opportunity for a viable ESPC and to give the agency the information needed to make a confident decision about proceeding with the project. It is not expected to be perfect or reflect a complete understanding of agency- and site-specific requirements.
The ESCO develops the PA at a modest cost and at its own risk. The agency is not liable for the ESCO's costs for developing the PA unless a task order based on the PA is issued to the ESCO. If no task order is awarded, the agency has no rights to the contractor's proprietary work products such as surveys, data, feasibility study reports, and design documentation.
Preliminary Assessment Kickoff Meeting
The PA kickoff meeting, attended by the agency acquisition team and the ESCO project team, is facilitated by the project facilitator. During the kickoff meeting, the teams will establish roles and responsibilities, communications protocols, and schedules. They will also establish schedules and arrangements for ESCO site visits, PA requirements and expectations, and a schedule for PA submission and review.
Contents of the Preliminary Assessment
The contents of the PA are defined in section H.4 of the master IDIQ contract, though the contracting officer has broad discretion to define additional PA content requirements. The key elements defined in section H.4 are a narrative description of the project, descriptions of the ECMs and their estimated energy and cost savings, a general measurement and verification (M&V) approach, financial schedules that detail the estimated costs, savings, payments, and management approach.
Agency Preliminary Assessment Review
The agency's decision to proceed is based on whether the project outlined in the PA is feasible and addresses the agency's needs and priorities as conveyed to the ESCO. The team will need to reach several conclusions before it decides to proceed with the project described in the PA. For example, reviewers should be sure their questions about the ESCO's ECM descriptions and M&V approach are answered.
The project should include the top-priority ECMs expected in the final package. Questions the PA should answer include:
- Does the PA meet or can it be adjusted to meet the majority of the agency’s needs?
- Do you think the agency and ESCO are likely to have a good long-term working relationship?
- Are you comfortable with the ESCO's representatives and negotiations during the PA?
- Are the ECM descriptions and projected energy savings reasonable?
- Is the M&V approach appropriate?
- Do all parties agree on the ECMs to be explored in the investment-grade audit (IGA)?
Any agency or FEMP comments about the PA should be recorded, consolidated, and provided to the ESCO. These comments should be resolved in the IGA and proposal without requiring additional iterations of the preliminary assessment.
Review of Technical Approach
In reviewing the ESCO's technical approach it can be important to consider whether the preliminary assessment reflects a comprehensive scope and to look for the ESCO's responsiveness to the agency's expressed preferences and priorities. The bottom-line estimates are important, but they depend on the assumptions used in the calculations. If facility operation changes would be required to install an ECM, this review should provide assurance that those changes are acceptable.
Review of Management Approach
The management approach in the PA includes:
- The ESCO's organizational structure
- The risk, responsibility, and performance matrix (RRPM). See Risk, Responsibility, and Performance Matrix (IDIQ Attachment J-7).
- Project management organization, approach, and project timeline. (Is a full-time ESCO project manager assigned?)
- Proposed operations and maintenance (O&M) and repair and replacement (R&R) services
- A small business subcontracting plan.
The PA review should address whether the project management approach and timeline are well suited for successful project implementation and whether the O&M and R&R plan and responsibilities address site requirements.
Although the PA does not include a firm fixed price, it should reflect pricing that is reasonable for the assessed ECM design and implementation, a financing estimate that is reasonable and obtainable, and service period pricing that is consistent with the assessed approach to sustaining and measuring savings.
The "Go" or "No Go" Decision
After the agency reviews the preliminary assessment a decision point is reached: Will the agency go forward with the project based on this PA? (This discussion assumes selection by qualifications and one PA only.) If the site decides to go forward, the contracting officer should provide comments to the ESCO about the PA, particularly about any adjustments needed in the ESCO's approach or direction as the ESCO team prepares to conduct the IGA.
If the agency rejects the PA it must be treated in accordance with the solicitation. Typically it must be treated as proprietary information, and the agency may not use it to develop future projects. Until an agency commits to go forward with a task order there is no cost risk to the government.
Step 4: Agency Issues a Notice of Intent to Award
The agency contracting officer formalizes the decision to proceed and conditionally commits to awarding a project to the ESCO through the Notice of Intent to Award (NOI). The notice specifies a time frame and conditions incumbent on the selected ESCO for completing the investment-grade audit and submitting a proposal. Once the NOI is issued, the ESCO may expect to recover project development costs as part of the negotiated task order price.
In a best-case scenario of expediting the project, the agency would issue the task order request for proposal (TO-RFP) concurrently with the NOI.
Two essential actions for the contracting officer before issuing the NOI are to:
- Confirm the agency's intent to proceed with all affected personnel
- Verify adequate ordering capacity of the ESCO's IDIQ with the DOE Golden Office.
Each ESCO has a $5 billion contract ceiling, so ordering capacity is unlikely to be an issue, but due diligence requires a check.
Phase 2 FEMP Assistance and Resources
FEMP's roles in phase 2 of the ESPC process include:
- Helping develop the notice of opportunity
- Providing consultation on evaluating energy service companies’ expressions of interest
- Providing draft agendas
- Facilitating meetings and teleconferences with energy service companies
- Reviewing the preliminary assessment and providing comments
- Engaging FEMP technical resources
- Helping draft the notice of intent to award.
FEMP also provides resources to help agencies complete phase 2 of the ESPC process.