This webinar is the fifth in a series of five webinars covering the different phases of ESPC development and implementation. Today we'll be focusing on the fifth phase and the last phase of the ESPC, which is the performance period. The previous four webinars focused on the first four phases of an ESPC project. At this point you've accepted the project your ESCO has constructed. During phase five the energy service company, or ESCO, delivers the savings and equipment performance as contracted and conducts the annual measurement and verification activities described in the measurement and verification plan, or M&V plan. The agency administers ESPC, ensures that the guarantees are met, and performs the services specified in the contract. Agency responsibilities for the ESPC are most important during the performance period. Finishing construction and paying invoices are not enough in federal ESPCs. The agency is responsible for the government's compliance with its contractual instruction and ensuring that the guaranteed savings are achieved. Agencies can expect to be held responsible for these responsibilities. I would like to introduce the instructors we have for you today. I am Brandi Eng-Rohrbach, the Program Lead at the Department of Energy's Federal Energy Management Program, or FEMP, for quality assurance services for ESPCs, and I am the Program Lead for USCC quality assurance as well as life of contract and project facilitation services. I have over five years of project management and consulting experience in the energy field. I previously analyzed facility energy issues for the navy. Prior to that I provided technical guidance and developed program implementation processes for utility demand side management programs for industrial and commercial clients. Our second speaker today is Tom Hattery from the Oak Ridge National Laboratory, and he is one of FEMP's federal project executives. Mr. Hattery has been serving as a federal project executive, or FPE, for the FEMP program since 2002. In this role Mr. Hattery assists federal agencies with alternatively financed energy improvements through contract vehicles like energy-saving performance contracts and utility energy-saving contracts. In his role he covers the mid-Atlantic and Northeastern United States, as well as all State Department facilities worldwide. And he is one of three FPEs here at FEMP. Our next presenter is Deborah Kephart, and she is with Allegheny Science & Technology and is a retired federal contracting officer with over 25 years of acquisition experience, including over 13 years with energy-saving performance contracts. She previously worked at the U.S. Department of Energy in Golden, Colorado as a contracting officer with responsibility for DOE's USCC master contracts. Prior to that she was a contracting officer with the Department of the Navy, responsible for award and administration of numerous energy contracts. Ms. Kephart is also an auditor, supervisory auditor, and financial liaison adviser with the Defense Contract Audit Agency, proving audit pricing and financial advisory services. She holds a BS in accounting from CSUN and is a California certified public accountant. Our last speaker for today is Bob Slattery of Oak Ridge National Laboratory. At Oak Ridge National Laboratory he is a program manager providing technical support to FEMP. Mr. Slattery conducts engineering economic analysis for FEMPS USCC and ESPC naval programs and the implementation of energy cost savings projects at federal facilities. As an engineer of 24 years Mr. Slattery's background has also included experience in the areas of advanced materials development, manufacturing, and technology deployment. He holds a bachelor's degree in mechanical engineering from Villanova University and a master's degree in mechanical engineering and technology management from Santa Clara University. Our learning objective for today's training is to learn how to ensure ESPC performance for your project. The key skills you will need to do this are developing and using a contract management plan; measurement and verification activities of ESCO and agency; reviewing M&V reports; maintaining contract file documentation; handling operations and maintenance and repair and replacement of energy conservation measures; managing challenges, handling savings shortfalls, and resolving performance concerns; and using the Federal Energy Management Program's life-of-contract, or LOC, services. The topics for today's webinar in support of those learning objectives are (a) contract requirements for ensuring project performance in the DOE ESPC indefinite-delivery, indefinite-quantity, or IDIQ, contract; (b) preparing for contract management (c) M&V and government witnessing – process and best practices; (d) O&M and R&R – agency and ESCO responsibilities; (e) resolving performance issues – ECMs, O&M, R&R, and savings shortfalls; (f) managing change and contract modifications; and (g) do savings cover payments? The primary goal for project performance is to ensure that the ESCO and agency comply with their contractual obligations throughout the term of the task order, which can be up to 25 years. For project performance quality assurance is achieved by ensuring the following. First, savings are delivered. Second, equipment is maintained and operated correctly. Third, the ESCO is performing M&V according to the plan and schedule. Fourth, the site performs M&V witnessing and review of the annual M&V report. And lastly, throughout the post-acceptance performance period the site maintains both continuity of awareness of ESPC and also records and key documents per the contract management plan developed by the site. ESPC contract administration can be a challenge given the long contract term, but its requirements are well defined. There is tools and guidance, including this webinar, available to guide you, and FEMP is here to help you with unanticipated concerns. All sites having DOE IDIQ ESPC projects in the performance period will receive FEMP life-of-contract services to ensure that, first, M&V is performed, reported and reviewed; second, guaranteed savings are realized; and third, ESCO and agency both comply with the contractual obligations throughout the contract term. FEMP achieves this by doing one contact before the annual M&V activities to remind the sites of the witnessing responsibilities and the need to review the annual M&V report. This is followed up with one contact after the annual M&V activities to remind of the need to review the annual M&V report. FEMP also facilitates the M&V process by providing guidance or training. FEMP also has guidance available regarding best practices for documenting witnessing and reviewing the annual report on our website. FEMP has additional life-of-contract services available to agencies throughout the contract term, and assistance is available upon request and can include assistance with contract modifications; technical assistance with performance issues; tracking responsible agency personnel such as the contracting officer, or CO, the contracting officer's representative, or COR, and other technical staff; and also making staff aware of FEMP training and guidance which is available to them. The next presenter will be Deb Kephart with section A.
Thank you, Brandi. The Department of Energy has awarded indefinite-delivery indefinite-quantity, otherwise known as IDIQ, type ESPC contracts to assist agencies in streamlining the acquisition process. These master contracts include many requirements that help ensure project performance. Federal agencies, they can then issue task order contracts under Department of Energy's master contracts for their individual orders. When agencies incorporate the IDIQ requirements into their task orders it lays the foundation for agencies to successfully manage their ESPCs. So, let's begin this section with a review of some of the key ESPC requirements. The purpose of an ESPC is to achieve energy savings and ancillary benefits. So, energy savings can result from various energy conversation measures, or ECMs, and it can also include avoided costs, which are savings from operations and maintenance of existing equipment that will not be required after the new ECMs are implemented. The ESCO identifies the ECMs after completing a preliminary investment and then an investment-grade audit. After contract award it incurs the cost of acquiring and installing the equipment, and the ESCO is than paid a share of any energy savings directly resulting from the implementation. The P in ESPCs indicates that they are performance contracts, and there are two areas of performance that are critical to ensuring savings. The first is guaranteed cost savings. But generating savings is not enough. ESCOs must install equipment that performs and meets agreed-to standards of service. The cost savings have to be verified and then documented in a measurement and verification report, and this must be done annually to ensure that the savings continue throughout the contract term. ESCOs are paid as the energy savings are realized, but the annual payments to the ESCO cannot exceed the related energy savings. So, what does "guaranteed annual cost savings" mean? According to the contract, the Department of Energy's contract, it means the levels of annual cost savings that the ESCO is willing to guarantee. The development of contracted cost savings is a process, so initially the guaranteed savings are estimated in the ESCO's preliminary assessment. And then, after conducting an investment-grade audit the ESCO will propose a dollar amount for each year of the contract. The agency evaluates the proposal and conducts negotiations. The annual cost savings are agreed to by both parties and included in the task order award documents on Schedule 1 and also included in the M&V plan. Facility performance requirements are addressed in section three of the IDIQ and agencies are expected to tailor performance requirements to meet their specific needs in their task orders. So, some examples of standards of service are shown, and they can be, for example, when an agency needs temperatures within a specified range or humidity level, when lighting levels must meet federal codes of specifications, when there are emissions or air quality factors that must be met, and so many others. But also, agencies, they must have the ability to direct the contractor to respond to equipment performance problems within a specified period of time when these problems result, and this is so that the government operations emissions are not compromised for a long period. But agencies need to convey to the ESCO their specific equipment performance requirements and include specifications and requirements in their task orders to ensure that they received the performance that they need. Regarding equipment performance, under the contract the ESCO has control over equipment selection and installation. But keep in mind that they don't do this in a vacuum. During the pre-award phase the agency specifies its objectives and performance requirements in the notice of opportunity in the task order request for proposal. The ESCO conducts the investment-grade audit and develops solutions. And during that IGA, or investment-grade audit, the ESCO and the agency are communicating to discuss potential solutions, to overcome barriers, and resolve uncertainties. The proposal must include equipment identification such as the manufacturer and the model number and the physical changes for each ECM. And then, agencies, they evaluate and negotiate areas of concern before coming to agreement and finalizing the contract. The ESCO is required to ensure the agency through commissioning that the installed ECMs achieve facility performance requirements and then document the ECM effect on performance in a commissioning report. It also performs post-installation measurement and verification to prove that the installed ECMs have the potential to meet the required standards of service and the savings guarantees. And the results, they're reported in the post-installation M&V report. Long-term performance of operations, maintenance, repair, and replacement will be allocated to either the ESCO, the agency, or it can be shared. And this is summarized in the task order risk responsibility and performance matrix and then detailed for each ECM. In addition, it will clarify how performance will be verified and what will be done if performance does not meet expectations. Contract quality performance is the responsibility of both the ESCO and the federal agency. The ESCO is responsible for carrying out its obligations under the contract. The federal agency is responsible for ensuring that deliverables conform to the contracted quality and performance requirements. And then, documentation is necessary to validate and confirm that the performance requirements are met. Because of the critical reliance on ESCO support and the large dollars involved, contract surveillance is vital, and this ensures that ESPC deliverables conform to the quality and performance requirements of the contract. The Department of Energy's IDIQs include requirements and clauses to assist ESCOs and agencies in their tasks. For each of the items shown there is an ESCO responsibility and an agency responsibility. So, in that first column off to the left there are a number of far clauses, and they are the same clauses you see in other federal contracts to ensure that supplies and services conform to quality requirements. The ESCO is required to maintain an inspection system that's acceptable to the government and to make records available. They are also required to provide a warranty of systems and equipment for a specified period of time. The agency also has some requirement to perform, and they must have the authority to review and evaluate ESCOs' records, perform inspections and tests, and then to reject or require correction of nonconforming supplies or services. In the second column it shows that a quality control inspection plan is required, as well as a commissioning report. The ESCO is required to develop the QC plan that includes procedures and authorities for design submittals and for documenting inspection and testing during construction. After installing the ECMs the ESCO conducts commissioning and submits a commissioning report documenting the performance. The agency should review the QC plan and it should conduct the tests and the inspections of the ESCO's procedures and practices to ensure that the requirements are met. It should also review the commissioning report and comment, require revision, or other responses leading towards acceptance. And completing these activities should help ensure that ECMs are successfully performing at acceptance and can achieve the contracted savings and performance requirements. Then there's the risk, responsibility, and performance matrix. This is a required task order attachment and it summarizes who's responsible for various topics. The agency and ESCO are expected to discuss ECM equipment performance and determine who is responsible for the day-to-day activities and that would be responsible for performing the day-to-day activities. The ESCO is responsible for equipment selection, installation, and performance. And they're responsible for performing the day-to-day activities consistent with whatever the task order states, as summarized in the RRPM. And then, the agency also has responsibilities. If they have agreed to perform day-to-day activities, they must be fulfilled consistent with the contract. And to the right there's the annual M&V. It's a process to provide assurance that equipment is performing and savings guarantees have been met. The ESCO performs M&V activities and submits an annual report to provide assurance that performance was achieved. The agency has to facilitate and witness ESCO M&V activities and promptly review the annual M&V report. If there are any discrepancies or comments, they should be discussed and reviewed with the ESCO in a timely manner. After an acceptable report is received it should be formally accepted by the contracting officer. FEMP has been working with ESPCs for over 25 years and has learned a thing or two over that time. These lessons learned have been integrated into the new Department of Energy master contracts for improved procedures, practices, and requirements. We see projects succeed when agencies build their project on a firm foundation of contract requirements and then follow the roadmap in Department of Energy's IDIQ contracts. Acquisition planning should be performed at the beginning of the acquisition process. Although Department of Energy's IDIQs lay a good foundation, agencies should tailor their ESPC task orders to address agency-specific requirements. The ESCO is responsible for carrying out its obligations under the contract terms and conditions. They are required to deliver annual guaranteed cost savings and equipment performance that meets standards of service. And the ESCO may also take on equipment operations, maintenance, and repair. Project success improves when they fulfill their obligations in a timely manner. The agency also has to do its part. They're responsible for ensuring that the energy savings, equipment performance, and any other deliverables conform to the quality and performance requirements of the task order. And sometimes agencies are contractually required to perform ECM operations, maintenance, and other tasks. And agencies, they must participate in annual M&V activities. So, project success improves when agencies fulfill their obligations in a timely manner. When all parts come together project performance is enhanced. In this section we'll discuss contract management as it relates to ESPCs. A contract management plan is like a roadmap that includes techniques, practices, and procedures for managing the contract. It can be used to detect problems, effectively address and resolve issues, and ensure successful contract performance. Prior to contract award, agencies should begin planning for how they're going to manage the contract during the post-award period. After award the plan should be finalized so that responsibilities and authorities are well-defined and accepted. Critical processes should be identified and explained showing how the team members are integrated to effectively address and resolve contract management issues in a timely and effective manner. Because ESPCs have terms that are up to 25 years agencies should count on change. There may be change in personnel, facility use, conditions, and other areas. A contract management plan should include how changes will be addressed. And the plan should incorporate best practices as presented in training or learned through past experiences. Agencies, they should consult with their FEMP experts to keep abreast of the latest developments. FEMP has found that transitions are a critical area and they can be tough to manage, so it's important to acknowledge and proactively implement the transition. Agencies should develop strategies and identify the individuals responsible for future activities. There should be a formal handoff of project knowledge, responsibility, and authority. You need some continuity between the implementation and the post-acceptance phases. But construction managers, they'll be phased out, and ESCO and agency personnel who will be monitoring performance and measure savings will be involved in the future. So, identify the right people who can step into their new roles. They should have access to the contract and know what's expected of them. The ESPCs have M&V and some other unique requirements that are not included in typical contracts, so training should be provided to prepare new team members for their roles and responsibilities. Remember, be prepared and don't let turnover or vacancies impede good contract management and your opportunities for success. The agency contracting officer will continue to be involved throughout the post-acceptance period. Only a warranted contracting officer has the authority to negotiate and authorize any changes to the task order scope, price, terms and conditions, or period of performance. They're responsible for keeping the official contract file current and accessible, and they provide formal approval of M&V reports. They also perform routine contract administration tasks such as modifying contracts to add funding, authorizing payment of invoices, and other contractor communications. Most agencies, they require the contracting officer to appoint a contracting officer's representative, or a COR, who is responsible for oversight of the technical aspects. Appointment is accomplished through a written delegation letter expressing the duties and responsibilities that will be assumed by the COR, and frequently the ESCO receives a copy of the delegation letter so that all parties know who has authority to do what. It's the COR working with their technical team that provide the day-to-day technical direction to the ESCO. Just like any other contract the COR must ensure the contractor is complying with the technical aspects of the contract, and they maintain documentation throughout the long ESPC performance period. And they should maintain contact with FEMP in its life-of-contract program so that they become aware of any new updates or changes to ESPC regulations or policy. On an annual basis the COR and their team participate in the M&V activities, and this would include providing access to the facilities; providing utility data for the ESCO to use; they witness the ESCO's M&V activities and they document the results of their observations; and when the agency has agreed to take on performance of maintenance and repairs they'll provide any of the pertinent equipment and records so that the ESCO can document the performance. And then, the COR will review the annual M&V reports, ensuring that the format, baselines, and measurements are accurate. Any issues or discrepancies would be discussed with the contracting officer for resolution with the ESCO. And when the report is acceptable on a technical level they would recommend acceptance to the contracting officer. And then, they're also responsible for ensuring that the agency meets its obligations, its technical obligations, under the contract. And the next presenter will be Brandi.
Thank you, Deb. So, ESPCs are long-term contracts, and over the years of a project's performance period there will inevitably be turnover in personnel and other changes that could challenge the agency's ability to perform appropriate USCC administration. A contract management plan, or a CMP, is essential for establishing and maintaining continuity of ESPC administration. A CMP is required by some agencies, such as the DOE, and other agencies can benefit from following such a plan. CMPs have various forms and names, such as functional requirement accountability management or performance evaluation measurement plans, or PEMPs, quality assurance surveillance plans, or QASPs, risk management plans, of life-of-contract plans, just to name a few. A template of the contract management plan can be found on the FEMP website to use for your project, and we'll go more into that on the next two slides. But keep in mind a good contract management plan will summarize key project parameters, describe roles and responsibilities, and describe processes to ensure that performance guarantees and savings are delivered. The contract management plan should be prepared at task order award by the agency. The plan should then be updated and kept current throughout the performance period. To be successful the agency should follow their plan throughout the performance period. As previously discussed, the purposed of the contract management plan is to describe the roles and responsibilities and processes to ensure that contract terms and conditions are followed and performance and savings are delivered. The plan should include all information necessary to effectively administer the contract and should include, first, a contract summary and background of the scope of work, including the goals and significant features of the contract. Two, a summary of contract details, such as contractor name, contractor number, period of performance, current contract value, and contract type. Three, identification of contract management team members, including their authorities, responsibilities, and limitations. Four, key contractor personnel. Five, contract communication protocols. Six, contract deliverables. Seven, method – a method for monitoring performance and saving guarantees. Eight, the measurement and verification plan. Nine, the commissioning plan. Ten, the risk and responsibility and performance matrix. And second to last, the invoicing procedures. And lastly, the disputes procedures. And just as a reminder, we have a template for the contract management plan, which you can tailor for your plan, on the FEMP website. And so, our contract management plan template actually has many resources to successfully manage your project during the performance period, and some of the additional resources you can find in the template are a witnessing log example, which is a sample form for recording government witnessing of M&V; a documentation matrix, which is a checklist of critical project documentation to be maintained for current and future CORs and COs; the O&M and R&R responsibilities list, which is a framework for summarizing O&M and R&R responsibilities from the final proposal; a CMP development checklist, which is labelled as Appendix A in the template, which is a checklist for developing a contract management plan and first-year actions; and a contract management plan implementation checklist, which in the template is Appendix B, which is its checklist for annual implementation of the plan. So, invoice and payments do not start until after project acceptance. Prior to project acceptance the ECMs have been installed. Then, the commissioning and post-installation activities confirm that the ECMs are performing and have the potential to generate savings into the future. Written notification from the agency to the ESCO confirming that the installation complies with the terms of the contract and has been accepted marks the point where the ESCO may submit invoices to the agency. Invoicing and payments can be done monthly, annually, or at any other negotiated intervals, though typically invoices are done on the annual interval at the beginning of the performance year in the NCCs. The agency is responsible for verifying that invoices contain any required documentation of services provided before paying. Payments are then made within the same year of performance after the review of the annual M&V report is complete. The annual – the agency should be aware of any performance issues, so the M&V report should not be a surprise to the agency. If the results of the last M&V report showed equipment is performing and guaranteed savings have been achieved, then there is a reduced risk for the next year. However, if the prior year disclosed a shortage and the problem wasn't fixed, the current year payment should be decremented. A best practice for your project is to leverage the FEMP free sources available to you. You can consult your DOE-FEMP experts before concerns become problems in your project. Your DOE-FEMP experts include the federal project executive, as previously discussed to _____, your project facilitator, and technical – and – sorry – technology experts at the DOE laboratories. The contracting officer and contracting officer representatives for the DOE IDIQ ESPCs and the Golden field office also provide support. They can be reached by e-mailing femp@go.doe.gov. And the technology experts previously discussed at the National Labs are made available through the FPE support projects, especially regarding the implementation of advanced or resilience technology. And thank you. The next presenter will be Bob Slattery.
Okay. Thank you, Brandi. I'd like to start by saying that one of the key benefits of making investments through our federal building infrastructure through ESPC is the framework that is in place to validate that energy savings and cost savings has occurred and to ensure the persistence of those savings over the project's term. In this section we're going to talk about the critical role of measurement and verification during the performance period and a component of the federal government's oversight of the ESPC project called witnessing. So, we'll start by defining a set of fundamental activities that support that persistence of savings. So, first we have commissioning, and this is a process by which we verify an ECM and energy conservation measure's proper installation and ability to perform. For example, ensuring that a lighting ECM can provide proper lighting levels or that an HVAC ECM can provide proper space temperatures. Commissioning is required for all ECMs prior to acceptance, and commissioning reports must include testing sheets, otherwise the post-installation report review would only be based on narrative. Measurement and verification, or M&V, will serve to validate that guaranteed savings are realized. Keep in mind that M&V is required by law and by contract. M&V is implemented as defined in the project's M&V plan that we'll discuss later. Witnessing is the term we use to describe the government's independent verification of the ESCO's commissioning and M&V results. In essence, we're double checking what the ESCO is doing to make sure that commissioning and M&V is executed properly. But keep in mind that witnessing does not constitute approval or acceptance of the ESCO's activity. Here we have an overview of M&V throughout the ESPC process. The DOE ESPC IDIQ contract prescribes the M&V process in general, but specifics are defined in each task order. We'll start with the M&V plan, which is the single most important item in an energy savings guarantee. Although the M&V plan is usually developed during contract negotiations, it's important that the agency and the ESCO agree on general M&V approaches to be used prior to starting the IGA and defining the baselines. The M&V methods chosen can have a dramatic effect on how that baseline is defined and determining what activities are conducted during the IGA audit. The project-specific M&V plan includes project-wide items as well as details for each ECM, including details of baseline conditions and data collected, what will be verified, how the energy savings will be calculated, and it defines requirements for witnessing of measurements. You'll see here that witnessing is required during baseline development, post-installation verification activities, and during annual M&V. The reason for witnessing across these three project phases is to ensure the accurate data collection for use in the calculation of expected savings and then validation of the savings that has actually occurred. So, at the baseline phase existing energy or water consumption will be defined by the data collection and measurement activities established under our M&V plan. During post-installation verification it will be conducted both by the ESCO and the federal agency to ensure that proper equipment and systems were installed, they're operating correctly, and they have the potential to generate the predicted savings. The verification is accomplished through commissioning and M&V activities, as mentioned previously. The results of the M&V activities are presented in a post-installation M&V report delivered by the ESCO prior to the final project acceptance. The focus of our webinar today is the performance period, which many people refer to as the annual M&V phase. At least annually the ESCO and the federal agency verify that the installed equipment and systems have been properly maintained, continue to operate correctly, and maintain the potential to generate the predicted savings. Throughout the entire M&V process ESCOs are required to use templates for the measurement and verification plan, the post-installation reports, and the annual M&V reports, which are included in the FEMP M&V guidelines that we'll discuss next. So, the application of M&V within federal ESPC projects has been refined over the past 20-plus years of the DOE program and is presently detailed in FEMP's M&V Guidelines, Version 4.0. Shown here are some of the key components of the guideline, including an overall process, six process steps for developing and implementing an M&V approach; a discussion of the allocation of risk and responsibility, a topic that we'll discuss a little further in our next section; explanation of the four primary M&V methods, A, B, C, and D; a discussion of how to go about selecting an M&V approach for a given ECM, including M&V approaches for 19 specific ECM scenarios; and finally, a series of appendices that cover specific federal requirements with respect to M&V, as well as the various plan and reporting templates that ESCOs are required to utilize. One important update to the guidance tied to M&V during the performance period were improvements to the annual report outline. ESCOs are required to use this format then reporting their annual M&V findings. The new outline improves transparency in the reporting of savings as it relates to the agreed-upon M&V plan, but also documents government impacts to savings that would be outside of that agreed-upon plan. This enhanced level of transparency and reporting will provide key information to ensure that the government is doing its part for maintaining savings over the life of the contract. So, an additional FEMP-generated tool that supports the M&V process is eProject Builder. Under DOE's latest ESPC contract structure ESCOs are required to use DOE's eProject Builder, ePB, to develop the project's financial structure and to enter annual M&V findings. eProject Builder is a secure web-based data management system that enables agencies and ESCOs to preserve, track, and report information for their portfolio of energy projects. eProject Builder utilized extensive security features to control access to the system and restricts user access only to projects they are associated with. So, ESCOs can only see their projects, and likewise agencies can only see theirs. Outputs from eProject Builder include generation of a set of task order schedules, sometimes referred to as TO schedules or financial schedules. These schedules outline both the savings and the payment structure of the project. eProject Builder can document annual M&V data and also house complete M&V reports. It also has additional reporting, benchmarking, and export features to retrieve data and analysis of projects in an agency or ESCO's portfolio for use in management and monitoring. So, although it's the ESCO's responsibility to enter detailed data into eProject Builder, before the ESCO can begin the agency is required to initiate the project. To initiate the project an agency only needs to enter approximately five pieces of data – a very quick process. And after that project is initiated by the agency, the ESCO will begin entering the necessary data to develop the schedules that I had mentioned. During this time the agency has no access to the ESCO's input and the ESCO will submit a hard copy of those task order schedules with its preliminary assessment and as requested during the investment-grade audit. Additionally, it will submit a hard copy with the project's final proposal. After negotiations are complete and agreement is reached, the ESCO will lock in the data in eProject Builder and submit it for approval. The agency verifies that the schedules in eProject Builder are consistent with those from final negotiations and it approves the schedules in eProject Builder. This will lock them in and then provide visibility of that agreement going forward. And then, after award the ESCO enters post-installation and annual M&V information into eProject Builder. The agencies will likewise then review and approve the M&V information annually. And then, if there are any contract modifications that require task order schedule changes, those will also go into eProject Builder. Again, the ESCO enters the data; the agency will, again, verify and approve. So, I mentioned previously that M&V is a legal requirement of federal ESPCs and that it must occur at least annually throughout the contract term. For each of those contract years in the performance period the federal agency has three primary roles which are, one, witnessing of the ESCO's M&V activities to ensure compliance with the M&V plan and documentation that the witnessing occurs. Additionally, they have to review the ESCO's annual M&V report – again, to ensure compliance with the M&V plan and documentation that a review was performed. And lastly, to ensure that the contract file was kept up to date with prior mentioned documentation of witnessing and M&V report review, as well as any actions or resolutions to saving shortfalls that might have occurred. So, shown here is a broader list of roles and responsibilities of both the ESCO and the federal agency during the annual M&V activity. The agency coordinates and schedules the annual visit of the ESCO. The ESCO then makes a site visit to perform the annual M&V in accordance with the M&V plan, and the agency is witnessing that M&V activity. Following the site visit the ESCO produces and annual M&V report using the outline per the FEMP M&V guidance and submits that report to the agency for technical review. The ESCO then enters those annual M&V findings into DOE's eProject Builder, as just mentioned. Then, the agency's contracting officer will approve the M&V report and the eProject Builder entries, or if any changes are needed request that the ESCO revise the report as necessary. On occasion projects do encounter issues that impact savings. In these cases the ESCO will have documented and quantified the impact to savings and proposed a solution to restore those lost savings. The ESCO and the agency would then work to resolve remaining issues and implement any needed solutions. All right. So, let's highlight a few best practices related to the agency's facilitation of annual M&V activities. Program experience has shown that it's best to assign M&V oversight responsibility to the contracting officer's representative, or the COR. This individual will oversee the agency's technical resources with respect to supporting the annual M&V activities and supports the contracting officer. This individual should have the technical skills to understand the project's M&V requirements or have access to technical resources for support in this area. Additionally, the COR should assign the role of witnessing to qualified individuals based on the expertise required to understand operation of each energy conservation measure. Overall, it's best to have a formal delegation of COR responsibilities, which would come in the form a written delegation letter from the CO to the COR covering witnessing and review of M&V reports. All right. Additionally, the COR would coordinate the timing and execution of the annual M&V activities with the ESCO. A key element for a successful and efficient M&V visit by the ESCO may include ensuring that proper access and escorts to address all of the project's ECMs are in place; schedule M&V inspections and data collection to coincide with actual operation of the ECM and availability of key personnel that may be responsible for operation of equipment under that ESPC; and providing the ESCO with any needed data – for example, site utility bills or maintenance records. Another important role of the COR is to make sure that any noted discrepancies are communicated to all parties so that proper remedies are put in place. We've discussed the principle of witnessing, but now let's get into some more detail of what it entails and how it can be applied within an ESPC. We define government witnessing as the government's observation and understanding of M&V procedures, tests, and calculations. So, why do we witness? In essence, it represents the government's due diligence in ensuring that the M&V plan is being followed and that savings have been achieved. As noted in prior federal audits, witnessing is a key component of proper project oversight and should be documented as part of a complete contract file. It ensures that both agency and ESCO communicate clearly and fully understand the measurement and verification of the savings, thereby justifying the payments that are being made to the ESCO. Overall, witnessing supports active facilitation and observation of ESCO M&V activities, which can in turn speed the process of the ESCO's M&V and the agency's review of the resulting results, as well as prevent disputes about performance. In the end, if the project is audited and an agency is asked, "How do you know the projected savings is correct and how do you know that the savings occurred?" you can refer back to the M&V plan and the documented witnessing you performed during the baseline, post-installation, and annual M&V visits as evidence of the agency's oversight of the ESCO's implementation of the M&V and delivery of the guaranteed savings. Throughout the various phases of ESPC development and execution FEMP has guidance to assist you, including one on the topic of M&V witnessing. The witnessing guidance can be found on FEMP's ESPC resource page, and it outlines what we refer to as a "graded approach" to witnessing that we'll cover in the next few slides. When following FEMP's M&V plan outline the ESCO's project proposal should draw on the FEMP guidance to recommend a witnessing approach for each ECM. Some best practices in the area of witnessing can be summarized as follows. First, ensure that individual assigned to witness a given ECM is knowledgeable in the operation of that ECM and has an understanding of the M&V approach used to verify the savings and what they ESCO M&V activity should consist of based on the M&V plan. Second, as mentioned in the previous slide, utilize FEMP witnessing guidance and consider a graded approach. So, what do we mean by a graded approach? The guidance recognizes that many agencies may be limited in time and expertise to devote government witnessing of ESCO M&V activities and suggests that a prioritized or graded approach may be considered. This would involve devoting the majority of agency resources to critical systems that might have a higher likelihood of savings degradation over time – for example, building controls or boilers and chillers – or those ECMs that represent a large percentage of the total project savings. In these cases the government would witness the ESCO on all M&V inspections and measurements. For ECMs with lower risk of savings degradation or lower overall savings contribution the agency might witness ESCO activity on a spot check basis or simply review and sign off on collected data forms generated by the ESCO. This range of a full accompaniment of the ESCO down to a signoff of just data collection sheets represents the range of a graded approach to witnessing. So, to wrap up the subject of witnessing let's take a look at a few examples by M&V option. To do that I'll take just a minute to review the four M&V options that I mentioned when discussing the FEMP M&V guidance. This chart shows a representation of the four main M&V options, A, B, C, and D. Options A and B are what we would call a retrofit-isolation method. So, in these cases, measurement and calculation are based just on the ECM – so, just on the HVAC ECM or just on the lighting ECM, for example. Options C and D are considered whole building or whole facility approaches. So, option D can be used for a single system. These approaches are typically used when there are interactive effects between multiple ECMs installed in a building. Say, for example, you install new building controls, new HVAC equipment, new windows and roof insulation. Each of these changes has an interactive effect with each other and it becomes challenging to separate out the energy savings between the ECMs. So, option A involves measurement of at least one key parameter during the baseline and post-installation state and using estimates of other parameters such that a calculation of projected savings can be made. During the performance period the measurement of a key parameter will occur, or simple inspections may be made to verify that the ECM has the potential to perform as designed. So, let's explore a few scenarios. First, let's consider a lighting measure involving hundreds of lighting fixtures. The ESCO would measure fixture wattage before and after installation and make annual inspections of fixtures to ensure that each ECM is in place and functional. During the baseline and post-installation wattage measurements the agency would ideally use the best practice of accompanying the ESCO on all measurements, but given the low risk of ECM performance the agency might simply opt to review and sign off on the ESCO's inspection sheets. So, next let's consider a major ECM involving the replacement of four large boilers, whereby boiler combustion efficiency was measured before and after installation, as well as annually. Given the critical nature of the ECM to the project, the agency would want to utilize the best practice of witnessing all four efficiency measurements each year to ensure proper understanding of the ECM's performance and the ESCO's execution of the measurement. Option B involves measuring all parameters before and after installation to determine projected savings and further measurement of those key parameters during the performance period to calculate the savings achieved. Option B is typically utilized in cases where there's a desire to account for operating variations and will result in a reduced uncertainty in the savings delivered compared to option A. However, option B is more costly to implement. In a best practice scenario under option B the agency would witness all measurement activity during the performance period. There may be cases under option B where data measurement is continuous throughout the year through the use of meters. Take, for example, the retrofit of an electric motor to a variable speed drive with some controls. Electric power would be measured with a meter installed on the electric supply to the motor. Power is measured during the baseline period to establish constant loading on the motor. The meter might remain in place on the motor throughout the performance period. Witnessing under this scenario would involve observation of the retrieval of the log data and/or verification that any automated data collection has produced a proper data set for M&V calculations. M&V option C involves whole-facility, utility, or sub-meter data analysis procedures to verify the performance of retrofit projects in which whole-facility baseline and performance period data are available. Basically, savings are determined through an analysis of utility bills or reading a utility meter but it's not a simple comparison of pre- and post-installation values. With this method you have to account for annual changes such as weather, occupancy, facility changes, and/or operating hours, all of which can make for a complex analysis. In this instance witnessing takes on the form of a review of the independent variables to be utilized in the analysis. The agency would need to verify that the proper utility data has been provided to the ESCO and that the assumptions for equipment usage, building occupancy, and other factors are considered reasonable. In general, there should always be a walkdown of all equipment under the project to verify it's still in place and appears to have the capacity to perform to the guarantee. Option D is similar to option C in that it involves a whole-building approach. However, within option D a computer simulation of the building is utilized. From a witnessing perspective option D is similar to option C and may involve verification of data sets and variables for use in the computer models. But it also may involve physical witnessing of collected data measurements from select equipment. Witnessing under option D ultimately helps ensure that the computer models properly represent current operating conditions. It's quite comment to see option D used for the first year or two of the performance period and then revert to a retrofit-isolation method like option A as appropriate for the measure. In those cases performance period witnessing will take on the form of the approaches discussed in option A. You'll recall that one of the key agency responsibilities in the performance period with respect to M&V was the review of the annual M&V report. An important outcome of a review is to ensure that the report documents whether all parties in the delivered energy cost savings meet the task order requirements. To do this, an agency should have formal procedures in place to ensure prompt review by individuals qualified to assess the findings from the ESCO and the adherence to the M&V plan. Holding a meeting with the ESCO to present and review the report results can greatly increase the agency's understanding of the project performance and any areas to address to ensure savings persist. Having a thorough review, understanding, and agreement of the first-year M&V activity and reporting can have a positive long-term effect on the performance of the project. And FEMP has guidance on their ESPC resources website, which provides detailed approaches for the review or post-installation and annual M&V reports. The guidance just mentioned provides a framework for report review that ideally verifies that reports provide all required information, that the M&V plan was followed, additionally that field-measured values were carried over to the report. So, keep in mind that reports are typically edited year-to-year with updated values and you want to be sure that the ESCO hasn't failed to update data from the prior year. We also want to ensure that factors were held consistent for calculations and that they're per the task order, and that calculations are correct and they follow the M&V plan. Additionally, that utility and escalation rates used to calculate cost savings are consistent with the contract. Again, this can be an issue if reports are not updated properly from prior years. We ultimately were trying to ensure that the guaranteed energy and cost savings were met, and that agency impacts on savings are quantified and documented. This goes back to the transparency that I spoke of in the beginning. So, when reviewing M&V reports there are a few key questions that we're ultimately trying to answer. When applicable, the report should provide an explanation of any differences between guaranteed and reported savings and contain information on what corrective actions will or should be taken and by whom, any required actions that should be taken on the key issues identified in the report or agency review. Specifically to each ECM the report should inform the agency of ECM performance for that given year and its potential to continue providing savings in the future. If such an ECM's operation, maintenance, repair, or replacement are impacting savings, it should be clearly stated. The M&V reporting outline also requires that the ESCO document by ECM who from the federal government witnessed the M&V activity. At a minimum, the ESCO should document evidence of witnessing in the appendix of the annual M&V report. After the agency's technical review of the M&V report, results of the review should be provided to the agency contracting officer. Any shortfalls, exceptions, or discrepancies should be discussed with the ESCO, and the ESCO should be notified if M&V report revisions are needed. All right. To adequately document the review and acceptance of our annual M&V reports ESPC contract files need some information in addition to the usual. Some agencies have found their records to be lacking when asked to show that their ESPC savings guarantees were achieved. M&V 4.0 and the DOE IDIQ modifications require agency involvement in witnessing ESCO M&V activities, as we've discussed. It's important that agency contract files include documentation of who performed the witnessing and when and the witness' observations and notes, or at a minimum the signed inspection sheets that I mentioned. A copy of each annual M&V report should also be included in the contract file and there should be no gaps. If an annual report is found missing, it should be requested from the ESCO and added to the official contract file. This report is critical to showing that contracted savings have been achieved. CORs are responsible for overseeing the technical aspects of contract performance. In this role they have primary responsibility for reviewing the ESCO's annual M&V report and ensuring that any discrepancies or questions have been adequately addressed. After the COR is satisfied with the annual M&V report he or she submits a memorandum to the CO attesting to the acceptability of the M&V report, which is then placed in the contract file. If this memo is missing from past years, the contracting officer should direct the COR to review and submit memos for back years. A copy of the contracting officer's notification to the ESCO that the M&V report has been accepted is then placed in the contract file. And although not required, some agencies find it helpful to execute a contract modification documenting the acceptance of the annual M&V reports. Although some documents may be misplaced or lost, official contract modifications can usually be retrieved and are a good record of report submittal and acceptance.
Okay. All right. This is Bob Slattery again with you and I'll be covering our next section, section D, on the topics of operation and maintenance and repair and replacement, ESCO and agency responsibilities. So, as with any energy-related building retrofit project, performance over the years of operation will be greatly affected by how we operate and maintain the equipment. This is no different under ESPC. So, let's take a look at some approaches and best practices associated with O&M and R&R under ESPC. Performance of the ECMs is the foundation of the guarantee and the value of the project. The ESCO is ultimately responsible for the selection, application, design, installation, and performance, of the equipment and must maintain specified standards of service such as temperature, humidity, lighting levels, etc. Responsibilities for O&M and equipment repair and replacement are negotiable and may be assumed by the ESCO, the agency staff, or subcontractors, but it's critical to spell out how proper performance of these functions will be ensured. Typically, the agency operates the equipment with ESCO oversight. Maintenance can go either way, but the ESCO is always responsible for defining the maintenance program, providing training, and verifying execution. Often, the ESCO is responsible for repair and replacement; however, the agency should negotiate whatever arrangement best addresses their needs. Some choose to keep all of these functions in house to minimize the cost of the project; others lack the in-house capability or prefer to pay for that "insurance" of having one responsible party for all these functions. In general, we see a trend toward having the ESCO maintain and in some cases operate the equipment to ensure that savings guarantee is not compromised. All right. So, to be negotiated and spelled out in the contract are, first, how performance and standard of services will be verified, and second, what are the consequences for unacceptable performance and standard of services? So, if the agency takes on O&M and R&R responsibility, we want clear record of, first, what level of performance is expected of the equipment in order to generate the intended savings. Second, what parameters need to be documented – for example, maintenance log of filter changes. Additionally, how will the ESCO monitor and report the agency's compliance with O&M assignment? And finally, what will be done if the agency fails to perform these duties adequately? One of the tools we use to capture this information is the Risk, Responsibility, and Performance Matrix, the RRPM. It is a required component of the ESCO's final proposal and it has specific sections addressing how O&M and R&R will be handled in the project. So, shown here is a portion of the RRPM template that I just mentioned. Highlighted in green are the RRPM topics of equipment performance, operations, preventative maintenance, and equipment repair and replacement. For each there's a description of the topic area and instructions shown in bold on the level of detail that should be provided when describing the assignment of roles and responsibilities. A strong RRPM will address the portions in yellow highlighting, which outline what will be done if deficiencies in any of these topic areas impact overall project performance. A well-detailed RRPM will help avoid disagreement between the parties years down the road, as well as helping to expedite the restoration of savings should impacts occur. When developing an RRPM with your ESCO give some thought as to what your organization is capable of handling. So, in the DOE IDIQ contract you'll find wording that indicates regardless of who performs the O&M and R&R the ESCO is responsible for those items. So, what does that look like when the agency has indicated they will take on responsibility of performing those items? Essentially, this means that the ESCO still has full oversight responsibility to ensure that the details outlined in the RRPM are followed, and if not, that the deficiencies caused by the agency's underperformance are clearly communicated and that remedies to those deficiencies are provided. Remedies could be as simple as the ESCO providing additional training on the O&M requirements or a shift in responsibilities whereby the ESCO takes over O&M through a contract modification. So, FEMP has recognized the importance of ESCO-provided training to the success of projects by making it a contract requirement. An ESCO's final proposal is required to provide details on how training will be provided for each ECM. Training is to be customized based on the assignment of responsibilities in the RRPM and consists of both a classroom phase and a field demonstration phase. Unless stated otherwise in the task order, training is to be held on an annual basis and materials are to include maintenance plans and manuals. So, let's cover a few best practices in the area of O&M and R&R, starting with the agencies having a solid understanding of what they've signed up to do. This also means ensuring that the RRPM defines the general O&M and R&R approach, that procedures for the agency to follow have been identified in the task order, and that equipment manuals – and/or equipment manuals, and that the agency has received the necessary training on all installed equipment. Although the ESCO is responsible for providing manuals and training, the frequency and format of training is negotiable. Agencies should participate actively to ensure that operations, preventative maintenance, and repair and replacements are performed in accordance with the contract terms. In addition, records should be maintained to document performance. For more information on this topic you can go to FEMP's ESPC resources page and there is a FEMP O&M guidance document. So, let's recap some of the factors to consider when an agency is considering performing O&M and R&R. By having the agency handle these responsibilities costs are removed from the project cash flow, thus additional investment in other areas may be possible. It is important to understand the integration of the project's O&M needs with any existing O&M contracts that the site may have. If the scope of the O&M for the new ECM is outside the scope of your existing O&M contracts, you need to be sure that those existing contracts can be modified. The same goes for the opposite scenario, whereby you want to have the ESCO to perform the O&M and you want to claim the savings of no longer needing the existing O&M contract. Make sure you can modify or cancel those existing contracts and actually realize those savings to the project. As mentioned earlier, don't take on something your agency likely can't handle. For unfamiliar ECMs it may be best to have the ESCOs perform O&M to ensure that savings persist over the life of the contract. Remember, they don't get a portion of their annual payments if the ECMs they are operating and maintaining don't perform to the guarantee. Okay. Let's move on to our next section on the topic of resolving performance issues. So, as is the case with any of the technologies within our buildings, from time to time we can have performance issues that need to be addressed. In this section we'll look at what happens if performance issues are encountered within our ESPC projects. So, as a quick recap, recall that not only is the ESCO held to a contractual guarantee of annual project cost savings, but they also have the responsibility to comply to the standards of service for facilities per the task order. Again, those are light levels, acceptable temperature or humidity levels, et cetera. The ESCO's annual M&V report should be transparent as to the performance of the project in these areas. But what happens when there is an issue that causes a shortfall to the guaranteed savings or an unacceptable condition related to the standards of service. Well, first, DOE's third generation IDIQ contract includes a section entitled "Alternative dispute resolution," outlining a process which includes mediation, facilitation, fact-finding, and group conflict management. But this type of process is rarely used. Keep in mind that under an ESPC the ESCO is a partner to the deal who has a vested interest in keeping the customer happy and seeks to provide a range of services in the future. So, typically, a well-defined RRPM will help avoid disputes and provide a path forward to resolution. Recall the RRPM slide I discussed earlier with each of the yellow highlighted sections that sought to identify what was to occur if a particular project element failed to support the ECM performance. And likewise, elements of the M&V plan may provide a resolution path or trigger certain ESCO and agency actions when certain events occur related to ECM performance. Or agencies can develop specific procedures as part of the task order RFP, which becomes incorporated into the contract. I mean, ultimately, if you have concerns with a project's performance, reach out to DOE-FEMP for assistance before issues result in long-term loss of savings. All right. So, what happens when our annual M&V report shows a savings shortfall to the guarantee? If the annual savings as determined by M&V are less than the annual guaranteed savings amount, the ESCO must correct or resolve the situation or negotiate a change. If a contractor fails to meet the guaranteed annual savings as verified by the M&V documents, the agency shall adjust the payment schedule as necessary to recover the agency's overpayment in the previous year and to reflect the lower performance level in the current year. So, when an ECM's performance level is restored the agency will adjust the contract payment schedule accordingly. In cases where the agency's action or inaction is responsible for the shortfall the agency continues to make the payment per the task order schedule agreement. In the case of a savings shortfall how it was handled and reconciled should be documented in the contract file. So, now I'm going to turn things over to Tom Hattery to cover a few additional items related to resolving performance issues. Tom?
Thanks, Bob. Hello, everybody. So, to go over a couple more points on resolving problems – and this slide is really a sort of good news slide in a way in that the ESCO is in the position – we're kind of in the driver's seat in ESPC on the governance side because we've executed a contract but we haven't paid everything. As a matter of fact, in the first few years we haven't paid very much toward it, right? We're paying – making annual payments. And any time that contractor fails to perform we can withhold a payment. So, they know that. They want to keep people happy. They don't want some small problem to be made into a big problem. So, they want to have good relationships. So, they're going to work very hard to work things out if there is a problem. The other good thing is that the ESCO has really dug deep into your facilities in order to do a project, in order to do an investment-grade audit, and then they're very often very familiar because they are responsible for certain maintenance of equipment or keeping it up. So, when a problem happens they can help you troubleshoot to figure out what is causing the problem. They may find out – and when I say "they find out" I'm not saying that you're going to accept what they're finding as gospel because you're going to have your own technical experts make sure that what they have brought to your attention is accurate. But still, it's going to help you find out. So, you might find it's not a problem at all. You might find – we've had examples where we've gotten contact from agencies like "Oh, my goodness. My utility bill is way up. And so, where are all these savings from the ESPC?" And you go down and check, and at the time the ESPC was installed they were on a 12-hour day and they've had an emergency and they're now on a 24-hour day, so they're using a whole lot more electricity, for instance. But in fact, they're saving a whole lot more because they are providing 24 hours of lighting or conditioning at a lower per-unit cost than they would be providing 24 hours had they not done a project. So, they might – you might find out that somebody perceived a problem but really there is no problem. Next, it could be in fact what Bob was talking about, an ESPC-related problem that is the ESCO's failure, in which case some action needs to be taken. Probably some payment decremented, the next payment reduced by the amount of failure of the – if there's a savings failure, for instance. And the next would be an ESPC-related problem that is an agency failure. So, for instance, we've had this happen where an ESCO has installed new lighting. They've gotten rid of all your 32-watt lamps and put in 10,000 25-watt lamps. And the agency says, "Well, you know, we've always replaced lamps. We're going to continue to replace lamps." And that makes sense. You don't want to have your savings going to pay an ESCO to have a guy drive out in a van just to replace your lamps, so your staff continues to replace the lamps. And somebody trying to do the right thing finds in some closet somewhere this big stock of old 32-watt lamps and he goes and he replaces the blown out 25-watts with 32-watts. So, you go and find out that, hey, this isn't performing. But it's not performing because the staff put in the wrong lamps. And the last thing that can happen is that people can perceive a problem that – they know the ESCO is in there and doing some comprehensive job of replacing and restoring equipment and so on, and then something's not working right, but then you find out, hey, the equipment that's not working right really had nothing to do with the ESPC itself. So, that's not a problem for the ESPC. The other thing – this slide is just sort of a comfort level slide that in training – one of my concerns about training is that we necessarily talk about all of the things that could happen or have happened and how do you deal with them. But sometimes to me it comes across like "Man, there are all these problems that are associated with doing projects." And this should give you some comfort that even though we – it's very important we talk about shortfalls, how do you identify them and how do you deal with them and how do you remedy them, it just doesn't happen very often. In general, the reported savings, as you can see, are above 100 percent of what was guaranteed. There are only a shortfall on a very – a handful of the 300-some projects that we've done. And the shortfalls are typically small. And there are fairly straightforward processes for remedying this. So, the first thing that you do is you reduce payment. If you were supposed to have $100.00 of savings and you've only gotten $95.00 and you were supposed to pay the contractor $100.00, you reduce that payment to $95.00. The ESCOs have a built-in incentive to correct this, and of course they want to, again, keep you happy, show that they're responsive, show that they're responsible. But also, they don't want to have an incentive on their books. So, when they set up a project, they've got a long-term loan, that's their loan. They're responsible for it. If the lender has a problem getting paid, they can't come to the government. They have to go to the contractor, to the ESCO and say, "Hey, we're not getting paid" and straighten this out. So, the contract is between the ESCO and the financier and they owe that financier – let's say it's $100.00 and if we're shorting them payment $95.00, if the ESCO doesn't fix that shortfall, that could be a permanent imbalance on their books. So, I have had a couple of projects where they've come in and put in additional capital investment, additional equipment at their own expense because they couldn't tweak the equipment that they did have. They couldn't get it up to the level of savings of the contract, so they've actually installed additional equipment in order to get that project to deliver the amount of savings that was in the guarantee. So, this is just a few pointers on best practices. And Bob's gone over some of this but it is very important that you review and comment on the measurement and verification reports in a timely fashion. You don't want to hold up the process. Matter of fact, sometimes there's confusion about "Hey, until we get this M&V report reviewed – we've got this payment that's due to the contractor but we can't pay them because we haven't reviewed the M&V report." No, you can pay them. Don't let the M&V report review – if it's the agency's fault of not getting it done timely, don't let it hold up the payment. You can decrement the next year's payment if you do find that there's an issue. And the issue should be fairly evident in most M&V reports anyway, but do do them in a timely fashion. And the COR should work very closely with the contracting officer. And the reason this is in a colored font there is to make sure we emphasize the issue, and Deb's talked about it and we'll talk about it again, but in the audits that we've had one of the problems that's occurred is very simple to rectify, and that is that there hasn't been any information in the contract file about the M&V report review. Or, if there was a problem with the M&V report, no information in the contract file about what was done about it. So, the COR being the technical – assuming that's the technical person – should be reviewing the M&V report and sending a memo to the CO, "Yes, I've reviewed the M&V report. Looks good. We're good to go for another year." And the CO should be very diligent about making sure that is entered into the contract file. And if there is a shortfall and let's say it's a shortfall because of putting those 32-watt lamps in or whatever, or there's any other kind of change that is reflected in the M&V report, you might decide for business reasons, "You know, it just doesn't make sense to take any contract action on this." And that might be fine. But make sure that that rationale has been entered in in the contract file and say, "You know, my COR says that it's really not a big deal because of this or that and it would cost us more to do this or that." And so, that goes into the contract file that you have recognized that there was an issue raised in the M&V report and you've dealt with it. You might deal with it a different way and also put that in. You might deal with it by decrementing payment and put that in. But even if you decide not to take an action like that, be sure you've put the rationale in the contract file. The last point here is to consult with DOE-FEMP before questions or concerns become problems. And it's kind of out of sight, out of mind. We're so involved in this – we're going to be showing you a few slides later about – in assistance throughout the project development, award, installation, post-installation measurement, first-year M&V. And then, after that we're – we do get involved in the life-of-contract, which is checking with the annual M&V report – we'll talk about that too – but basically, the relationship then just glides into the technical staff and the ESCO, and they're communicating on a day-to-day basis. And so, out of sight, out of mind. And then, an issue comes up and we're not contacted, but maybe we could help very easily because it's not a typical contracting issue; it's a really ESPC-specific type of issue that we really need to be helping you with. So, do keep us on speed dial even in between those annual M&Vs and let us know right away should a problem occur. Okay. The next presenter will be Deb Kephart.
Well, thank you, Tom. In this section we'll discuss managing changes and contract modifications. So, FEMP has conducted reviews of existing ESPC task orders and confirmed that with contract terms up to 25 years the only certainty over time is change. And there can be changes because of personnel, facility usage, building conditions, technology, or any number of different topics, some of which are listed there. "Complete surprises" comes up more than it should. But what we've learned is that change is inevitable and agencies should plan for change and how it will be managed. So, changes, they should be acknowledged and then analyzed to determine what contract action, or what kind of action, if any, is necessary and its nature, meaning the circumstances, the significance of the change that will determine what actions an agency should take. Agencies should examine the change to determine the next step. And the next step might be a contract mod, a partial or a full termination, or it could be a record to the contract file. We suggest that agencies document their analysis and their course of action in the contract file while the information is fresh. This helps if there's a later follow-up question or if information is requested in an audit and you'll be able to respond very quickly. There's nothing worse than having to go back five years and recreate "Well, what happened back then?" So, be sure you include that documentation. And the contract files, you really do need to keep them up to date continuously. For contract modifications, there will be routine or administrative modifications that don't affect the rights of the parties, such as obligating funds in order to make payments or changes in the contracting officer or the contracting officer's representatives. There may even be modifications to document acceptance of the annual M&V report. Although that's not required, it's sometimes helpful. And another change could be to reflect new conditions. The changes resulting from demolished buildings, changes in agency needs, equipment usage, and similar events that could have a significant effect on equipment performance and the associated savings. There may be other within-scope modifications. So, these are changes potentially adding or deleting work that are within the general scope of the contract and would not be considered a material change to the contract that was competed and awarded. So, there are some nuances and variations among agencies about interpreting what this means, and some suggest that the notice of opportunities state the task objective in broad terms so that ESCOs can investigate and then propose solutions giving some flexibility. And Department of Energy can provide some additional information for an agency-specific situation. Keep in mind that some contract modifications are going to require revising the expected savings or contracted payments and will require changes to one or more of the financial schedules. The government has the authority to terminate a contract for convenience at any time. And for contract terminations, ESPC regulations state "Follow FAR Part 49," and that's just the standard termination language. So, when a termination occurs, either partial or full in an otherwise fully performing task order, budgeted dollars will usually be required, and this is because the ESCO has obtained financing, installed ECMs, but the agency has not fully paid for the equipment. When ESPCs are awarded there's an assumption that the ESCO will be repaid for ECM installation over the contracted term, and when the term is shortened there's typically an outstanding loan balance that the ESCO still owes the financier and will need to be reimbursed for. Schedule 5 typically provides information on the unpaid loan balance for each year of the contract. And this can be useful in negotiations, and terminations are negotiated typically. Full terminations are typically required when a facility is closed or there's a BRACK. And agencies should follow their agency policies and procedures. Partial terminations may be necessary when buildings are shut down or ECMs are removed. Both full and partial terminations require a contract action. With partial terminations you'll need to segregate out a portion of the baseline's costs and savings, then negotiate revised performance and task order schedules that include only the continuing ECM savings and deliverables. Partial terminations are typically going to require a payment to the ESCO for the services and supplies that are being terminated because the ECMs have already been installed and they're performing, and the agency will retain ownership. Consider what actions would be required if the agency decides to remodel part of a building or replace equipment with better technology. Should it be a note to the contract file, a contract modification, or a partial termination? Well, it depends. There's no definite answer. And the agency contracting officer and the team, they need to promptly analyze the situation and make a determination. For a remodel, consider the significance of the remodel on the ECM or the task order. Can this equipment be used elsewhere? Can the savings guarantee still be met? If the remodel results in a significant impact, then the contract should be modified or partially terminated to document the change and the impact on performance savings and payments. But if the impact on the ECM performance and savings is insignificant, consider modifying the contract to note the change conditions or include documentation in the file indicating that the government is aware of the change and then decided that no formal modification or contract action was required. When replacing equipment with better technology, again, consider the significance of the replacement on the ECM or the task order. If this refresh results in a significant impact on savings, then the contract should be modified or partially terminated to document the change and the impact on savings or payments. But if not, either modify the contract to note the change or document the file. When there is a change, don't ignore it. But the answer is a partial termination is not always necessary. Agencies need to evaluate "What are our options; what happened?" and make a determination. Cancellations – they don't happen very often, but the Department of Energy master contracts include all the clauses and schedules that are required. ESPCs, they're multiyear contracts, and that means that they're for a known quantity covering multiple years and future year funding is not obligated to the contract at the time of award. So, when a future year funding is contingent upon appropriation of funds, the federal acquisition regulations require that a cancellation ceiling be established. All the task orders are required to include Schedule 5, and that establishes the negotiated "not to exceed" ceiling for each year subject to cancellation. There is some alternative language that can be used to identify at the time of task order award certain costs that would normally form the basis of a claim following a cancellation or a claim following a termination for convenience after ECM acceptance, and those can be found at the FEMP website, or contact your federal project executive such as Tom and Doug and Scott for help in that area if you need it. Frequently, there's a supplemental schedule attached to your contract showing the monthly financing liability. This monthly schedule, it helps if a contract is cancelled during the middle of the year. The DOE contracting office in Golden, Colorado, they're available to assist agencies if more information is needed regarding cancelling a task order. There's very little difference between the closeout procedures of an ESPC and a typical contract, so agencies should perform the routine activities required by the regulations and their agency policies and procedures. I'm just going to point out some of the unique features associated with an ESPC. In closeout, it occurs after the task order is physically complete. So, what this means is that energy savings and equipment performance have been delivered and accepted by the government; the ESCO has submitted the final M&V report and the government has accepted the report; the final payment has been made; and when all administrative actions have been completed, all the issues have been resolved, and all disputes have been settled. After that happens the contracting officer will notify the ESCO that the contract's ready for closeout. With some ESPCs titled to equipment it may be vested with the ESCO until the end of the term. So, agencies need to ensure that ECM title is settled prior to closeout. ESPC task orders, they're not exempt from the requirement to submit past performance evaluation information. And if the ESCO is performing the equipment operations, maintenance, and repair, well, agencies should consider who will perform in the future. There might be a need to award a new contract for these services from the ESCO or another contractor in the future. After contract closeout the savings continue to accrue and benefit the agency. I'm going to turn this over to Tom.
Thanks, Deb. Hello again, everybody. So, the next couple slides actually are – like some of the information I gave you before, it's partially to give you a comfort level that when you're making these annual payments you're okay, but also to give you some ammunition should somebody challenge you about "Hey, how's your project? Are you sure you're having the savings to make these payments annually?" So, this was a small study done – and Phil Coleman, as you'll see at the bottom one of the principal authors, always wants me to make sure that I say that caveat, that we only had the data available which was the ESPCs that we had – the full inventory of ESPCs, but also the self-reporting of energy projects by federal agencies into a database. But – and he expected to find that the self-funded projects, the direct-appropriated projects would not fare as well as ESPC, but he was really surprised to find the level of difference. So, you'll see on the left-hand side that ESPC projects of course are required by law, and so do exceed their – even estimates. Now, the reason it's 102 percent – you may remember 108 percent before – is because you have two numbers. One is the guarantee and one if the estimate. So, an ESCO might estimate that something is going to save $100.00, but because of the imprecision they don't want to guarantee $100.00. They might guarantee $95.00, let's say, so 95 percent of what they estimate. So, this is showing that it's even in excess of the estimation of how efficient equipment will be. And on the right side you see what was achieved with non-ESPC. Same types of things – chillers, boilers, lights, whatever – and it was only 67 percent of what was estimated. And I think there are a number of reasons for that and – but I think one of the principal ones, stated quite frankly, is that a contractor doing an ESPC can't make inflated claims because they have to stand behind it. A salesperson who is trying to sell you something under a non-ESPC where they put it in and they're gone, and if it's 67 percent of what they told you it would save, they're – they don't receive any remedy. No hard to them, right? So, they can make claims that aren't quite true. So, these projects really do deliver the savings that they say they will. And this was a different study done. Now, a little background on this, and that is that ESPC, we have a very prescribed methodology of determining the savings that we use to make payments, and we don't include anything that's outside of that prescribed process. We know that there are a lot of savings that occur outside, but we don't include them. So, when you look at the numbers on a particular project and it shows that it's saving you 108 percent of the guarantee or whatever, that's not showing you all of the savings. If it's going to save you $100,000.00 a year and you're going to make a payment of $99,000.00 and you think, "Man, that's really close," it's not close. And even if you discount this study by a whopping 50 percent or something, you still have a ton of savings in addition to – and here we're not talking about squishy savings like productivity and morale and things like that. All important things, but not things that are easy to measure and quantify. We're talking about – I'll just point one of the pieces of this pie out to you: efficiency decay of baseline equipment. So, what that means is that if you're replacing an 80 percent efficient boiler with a 95 percent efficient boiler, you might degrade the 95 percent efficient boiler over the next 20 years to 94, 93 percent efficiency. The 80 percent efficient boiler stays at 80 percent efficient. In reality, if you didn't replace that boiler, it would go from 80 to 79 to 78 and you would be buying oil or fuel for that boiler out of your operating budget on an annual basis when it is less than 80 percent efficient. And you might have something catastrophic happen and have to replace it. So, none of that – all of that is hard dollar costs to your annual budget that you're avoiding by doing this project that we don't incorporate in an ESPC. So, basically, what it means is an ESPC that just barely pencils out really becomes a no-brainer. This is just – the next couple slides is just a little bit more information about the support that DOE gives you. So, the first slide is going to be the first year after installation and the second slide is the rest of the time. Right? So, the first year, as with the rest of the time, the federal project executive, a person like me – and let me just say a little bit more about my role and my colleagues' role. We're nontechnical folks but we know the program real well, and if you look at us as if we're account managers for the agency, we know a lot about it and can help you directly. But we also – our job is to know all of the resources that DOE-FEMP has, whether it's DOE headquarters; DOE Golden, Colorado field office where they have procurement and legal experts; or the various national labs that might have answers to either technical equipment questions like solar PV or ground source heat pumps, but also questions like utility escalation rates. They have experts in that as well. The project facilitator – here's where it's sort of this first year afterwards is sort of the last big hurrah for the project facilitator. The PF is the technical person. He's helped you from day one of the project through development and installation. His last couple of jobs are the post-installation M&V, making sure that that's – that the equipment is working properly before you accept the project, and then he comes back a year later to help with the first-year annual M&V. He will go over that with you, make sure it's done right, make sure that if there are any issues he helps you figure out how to reconcile those issues. And then, finally, over the long haul – I already mentioned the FPEs, but FEMP has established life-of-contract services. And just a word of background on that is you heard me just talk about the project facilitator helping you with the first-year M&V. Well, in earlier days we figured that would be all an agency would need. "The technical staff is now trained on how to deal with the M&V report. They can do it themselves; they don't need our help anymore" What we've found in going back and checking was that that theory worked pretty well for the first four, five, six years, and then there was turnover and people didn't know how to handle it and weren't dealing – actually were not dealing with the M&V reports. They were coming in and sitting on a shelf and nobody was dealing with them. So, we felt it was the responsibility of the program to make sure this stuff gets done and gets done right, and so we help agencies. We track every project that's done under our IDIQ and we ping the agency on an annual basis so we can know if there's an issue. We can help them with the M&V report. We can know if there's an issue and help with any performance issues that are listed by the M&V report. The other thing that this does, frankly, is helps the agency manage its own staff that needs to do this. So, if we call out and say, "Where's – I'd like to talk to Joe, the COR, or the CO" and "Joe doesn't work here," "Well, who took his place?" "Mary." "Okay, let me talk to Mary. Hey, Mary. I'm with DOE and we're going over the M&V for ESPC." Mary says, "What's an ESPC?" and "I didn't know we had one." Eighty percent of the problem has just been solved by that much conversation, because now you know the right people. You've established the people who are responsible to review the M&V and the contracting officer who's responsible to make sure she gets the memo from the COR and puts that and maintains it in the contract file. So, that's it and – from my end, and turning it back over to Brandi Eng-Rohrbach.
Thank you, Tom. And thank you to everyone who was able to come and join the training today.
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