Kurmit Rockwell:
Welcome. I'm Kurmit Rockwell, the ESPC Program Manager for DOE's Federal Energy Management Program. In this presentation we will focus on what you need to know after your ESPC task order is awarded and you have entered into the performance period. ESPC task orders can last up to 25 years and there are tasks you'll need to accomplish every year until closeout. You may be in your first year of performance or possibly you've been assigned your project many years into performance. Whatever your situation this presentation will provide you the knowledge of what is required and how to get help. I'll be providing a brief overview about FEMP in today's presentation before introducing your instructors.
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FEMP's mission is to help agencies manage their energy use and meet energy and sustainability goals. A significant portion of FEMP's assistance is helping agencies to meet their goals through financing of their energy projects. Congress authorized agencies to use ESPCs to address the fact that many agencies have insufficient appropriations to make energy improvement and tasked FEMP with establishing the ESPC program to help agencies utilities ESPCs to achieve their goals.
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ESPCs are an effective tool for implementing energy efficiency measures and after construction the main focus for the agency is to ensure that guaranteed savings are realized and the ESCO and the agency comply with their contractual obligations throughout the performance period. During the performance period there is certainly that something will change. Just to name a few; personnel familiar with the project may be reassigned, changes in building use and occupancy could occur and renovations to building spaces may remove or even alter water or energy conservation measures. Though some of these changes may require some contract administration to document these changes and modify the contract others won't.
FEMP offers life of contract services or LOC as we call it to assist agencies with ensuring savings guarantees are met and help you manage your change. All DOE IDIQ ESPC projects receive LOC services. You'll be learning about the details later today.
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By the end to this training you should know the role of measurement verification or M&V in guaranteeing ESPC savings, the sites role in M&V witnessing and how to review the M&V reports provided by the ESCO the importance of operation and maintenance – or O&M – in guaranteeing ESPC savings, the site's responsibility with respect to O&M of installed ECMs, what is required for contract administration and where obtain FEMP guidance on all these issues and how to obtain LOC support.
Your instructors today – we have three of them, all highly experienced in ESPC – Bob Slattery, works for Oak Ridge National Laboratories. He's an engineer that has 20 plus years experience and he helps our program in many ways including managing our life of contracts services offered. Heather Buckberry is also working at Oak Ridge National Labs and she's also an engineer, mechanical engineer and a registered professional engineer. She has over 18 years of experience and a lot of that in the building design and construction industry as a mechanical designer. She also works with Bob Slattery. They work together as a team to support life of contract services for FEMP.
Deborah Kephart works for Energetics Inc. supporting the Department of Energy's Federal Energy Management Program and she retired from DOE where she was a contracting officer for the ESPC contracts. Before that she worked for the Department of the Navy and she was responsible for managing all facets of the contracting process and she was involved in many different ESPC task orders over that time period. So you have a very experienced group today to help you learn about life of contract services and administration of contracts going forward for ESPCs. I'm now going to turn it over to Bob Slattery.
Bob Slattery:
Okay, thank you Kurmit. Glad to be here with you today to discuss the topic of quality assurance within ESPC projects. We'll get started today with a brief overview of ESPCs in general followed by discussion of the role and measurement and verification within your project. We'll jump right in there.
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So let's begin first by looking at some of the differences between ESPC and appropriation funded projects.
Within an ESPC project the contractor typically referred to as the ESCO will develop a proposal of potential energy conservation measures, what we call ECMs to address the agency goals at the site. This would be in contrast to an agency developed statement of work as typically utilized under an appropriations funded project approach. ESPCs are implemented with no upfront cost to the government nor do they incur any cost during the performance period. Additionally payments to the ESCO must be derived from energy or energy related O&M savings and this savings must be verified annually through measurement and verification. Additionally ESPCs are long term contracts as mentioned earlier. The law allows for up to a maximum of 25 years and we typically find that most projects within the DOE program range between 15 and 20 years.
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So as mentioned in the last slide ESPCs must be paid for out of the energy or energy related O&M savings that the ESCO is able to achieve. Here we have a chart that represents this arrangement. So looking at before your ESPC contract at the left hand bar is your utility bill or any energy related O&M expenses to maintaining your energy systems. During the ESPC contract the ESCO has implemented a number of ECMs or energy conservation measures which have a guaranteed savings associated with them and that's represented by both this light colored blue bar and the green at the top.
So that is the savings delivered from the project. Now typically the majority of the savings are passed along to the ESCO so that we pay down this finance project as quickly as possible but typically there's also a very small energy savings component retained by the agency. Then of course after the term of the contract all of the energy savings from those measures accrues to the government. So given this project structure we typically describe ESPCs as being budget neutral during their performance period.
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So another important element of ESPCs is the ESCO's guarantee of annual cost savings. So this component of the contract provides the government with a degree of leverage and that payment to the ESCO can be upheld if the savings weren't delivered. Given that it's a guaranteed savings provided on an annual basis there must be an annual verification that the savings has occurred. This is where the role of measurement and verification comes into play.
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So the sequence presented here outlines the major activities within the annual M&V phase of an ESPC project. So starting with the ESCO's annual site visit they will inspect all ECMs, take measurements as defined within the M&V plan for your project. The agency does have a responsibility to witness the ESCO's M&V process. So the ESCO will take those collected M&V finding and produce an annual M&V report. If it happens to be your project's first year typically this report would come 13 months after the project acceptance.
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Then finally the agency would review that M&V report. We'll get into all these in greater detail.
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So now we'll take some time for a deeper explanation of measurement and verification and its role within an ESPC project. So why do we have an M&V requirement within ESPC? So to answer that question we have to look at the underlying framework of ESPCs and that's a fact that there's a savings guarantee and it's contractually and legally required to perform M&V. So M&V is the tool to which we use to verify that the guarantees are being met. But the M&V approach has to be appropriate for the type of savings you're undertaking. The M&V approach is detailed in the project's M&V plan and it will also outline the risks and provide a methodology for identifying problems. The famous CEO Jack Welch summed it up pretty well with the quote, "What you don't measure you cannot manage."
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So why is so much attention paid to M&V? It can be a bit challenging in some circumstances since the goal in essence is to measure the absence of something. In other words, energy consumption that did not happen. There are many factors outside. The equipment itself that can impact the energy use, for example, weather, occupancy of a building, hours of operation. All of these other variables can make verification of savings over long periods quite challenging.
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So the following are some points to consider when developing a project and assembling an M&V plan for the first time. So ultimately the level of M&V has to be a balance between savings assurance and the cost to implement that M&V. We can certainly spend a lot of money to install meters on every piece of equipment to have a high level of assurance but our project may not be able to support such M&V costs. You remember that all aspects of the project have to be paid for out of the annual savings including the M&V activities.
So a good M&V plan will target key performance parameters per measurement. However the counter to that is the M&V is not rigorous enough. Our savings may only be realized on paper. So ultimately we're seeking a balance where the M&V rigor is proportional to the ECM savings and the ECM's performance risk. In other words, how likely is the projected ECM savings going to change?
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So FEMP has guidelines in this area. The best descriptions of M&V methods and advice on how to use them can be found in the FEMP M&V guidelines. Presently FEMP has available on its website a draft of its next version of Guidance, version four soon to be formally released. The M&V guidelines give an overview of M&V and specific guidance on how you would use the methods for particular types of projects or ECMs found in federal projects. We'll provide an overview of some of these M&V options in the coming slides.
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So the balance of our course today is going to be covering many of the items needed to comply with the FEMP M&V guidelines and these would include items such as developing an M&V plan based on one of the four defined methods, executing your M&V plan, the agency witnessing of annual M&V activity by the ESCO and the ESCO's generation of the annual M&V report and of course the agency review of that report.
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So let's just spend a minute to review the potential M&V options for equipment that you might see in your project. As mentioned previously there are four M&V options. We note them by their names, option A, B, C and D.
Option A is called a retrofit isolation. It involves measurement of key parameters. So a typical example here would be a lighting measure. Lighting wattage would be measured before and after the retrofit and operating hours for those lights would be estimated for the year. Annual verification would involve inspection of the equipment to ensure that the lamp, let's say, that is installed is the same wattage as intended. In other words, someone hasn't come by and changed it back to the old style bulb.
Option B is a retrofit isolation as well but it involves measurement of all parameters. The simplest example of option B would be a solar PV array. In that case we have a meter which is continuously tracking the electrical generation which can be easily compared to the guarantee for that given year.
Option C goes off in a different direction. Option C is a whole building approach in which utility data is analyzed through a regression analysis to verify the occurrence of the savings. Option C has rarely been utilized within the DOE program and that's driven mainly due to the complexity and adjusting for items such as weather or other operational factors over the long term. Option D is also a whole building approach but is based on using a computer simulation of the building which is in turn calibrated to the baseline year's weather and utility data. It's helpful when you have multiple interactive measures in a large building to use in option D.
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So the graphic we have here it just provides a pictorial representation of what I just covered and that is that option A and B as shown in the green box are looking exclusively at parameters connected to the retrofit measure whereas option C and D are considering the entire building, the whole building approach including influences of weather and operation in comparison to actual meter data signified by the blue box and the meter there on the right hand side.
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So now that we have a general understanding of some of the various M&V methods we'll move into the topics of agency witnessing of annual M&V and then onto review of annual M&V reports.
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So as required by law for the federal ESPCs verification of the project savings must occur at least annually. For some larger sites there may be a regular ESCO presence for performing ongoing M&V data collection but typically the ESCO would make a single site visit during the year to perform the annual M&V activities. It's also typical that a single annual M&V report is produced but some projects have been arranged to generate biannual reports in cases where the agency would require such an approach.
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So as we indicated up to this point the agency has two important roles to play in the annual M&V process. The first being witnessing to ensure compliance with the M&V plan and the second being review of the annual M&V report.
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So we'll now take a deeper look into the role of agency witnessing. The goal of witnessing is to ensure that the agency's understanding of the project's M&V procedure, the test, the calculations are all done through the act of observation. So this will help to ensure that both the agency and the ESCO communicate clearly and fully understand the M&V savings that justified the payment being made to the ESCO. It also provides increased confidence for the agency that the savings expected under the ESPC are actually being achieved.
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So FEMP also has a set of published guidelines in this topic area of government witnessing and it outlines these with three key phases. The first phase involves preparation for the ESCO's site visit to ensure that the site visit's efficient and effective. The second phase involves the site visit itself and the physical task of executing the M&V plan and its elements. The final phase involves the critical step of the M&V report review and probably most importantly within there there's a follow-up on project findings such as operational deficiencies.
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So looking at the first phase of witnessing in some greater detail some of the key elements that we can draw out includes the following. The agency will want to designate a qualified witness. So typically this person might be a certified energy manager or someone who's had prior M&V training or experience. This person should also have the authority to arrange scheduling and access to required areas within the site. To that point it's important to communicate with the ESCO ahead of time on access needs so that everyone's on the same page in advance of the visit. Then to go ahead and set a schedule for the physical inspections and/or data collection activities.
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In addition, the agency will want to prepare for the site visit itself by reviewing the project's final proposal and contract so that the witness itself, that this individual is well-versed in the project's ECM scope and the M&V plan. Then depending on that M&V approach there may be some records that will need to be collected in advance of the ESCO's arrival onsite. Additionally, some points to consider each year at this phase is whether all project documentation is in order in the event that the knowledge needs to be transferred to a successor due to personnel changes that potentially may happen in the coming year.
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So at this phase the site visit and physical M&V inspections are simply a matter of executing the schedule you established with the ESCO in the first phase and conducting the inspection as per the M&V plan. At this point the agency witness is escorting the ESCO to various equipment, witnessing data collection activities. This time can also be used by the agency to communicate any operating issues that have been identified over the past year if they haven't already been communicated to the ESCO during the prior performance period.
If the project happens to be in its first performance year it's a good idea to review the post-installation and commissioning report to see if all ECM punch list items were addressed. It can be common for some projects to be accepted prior to completion of minor issues that need to be addressed with ECMs. So it's a good idea to follow-up on those to make sure they were in fact completed. It's also a good idea from some of the best practices that we've derived over the years to hold a post- M&V review summary meeting. This will allow the ESCO to convey in person some of the initial findings to site staff in advance of the formal written report.
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So to wrap up the topic of the witnessing let's take a look at a few examples by M&V option. So as mentioned earlier option A involves in measurement of a few key parameters of the ECM itself. So using the lighting example mentioned earlier the ESCO would have measured the fixture wattage before and after the retrofit and the agency and the ESCO would have typically agreed on a predetermined value for the number of operating hours.
That may just be from site interviews or they may have put in data loggers for a number of weeks in the development period to capture that data. But ultimately the agreement going forward is those would perhaps remain fixed. So during the annual M&V phase the ESCO and the agency would typically in the case of lighting sample a series of fixtures to make sure that the installed lamps were in accordance with the ECM design and that any lighting controls are properly functioning. So measurement would take place pre and post retrofit but annual witnessing is more of a verification of the ECM being intact to the design.
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So we'll move on to option B examples. Option B like option A is also focused on the ECM but involves measurement of all parameters. Here let's take the example of an electric motor such a variable speed drive and control system. So the electric power would be measured with a meter installed on the electric supply of the motor. So power would be measured during the baseline period to establish the constant loading on the motor. Then the meter would remain in place during the performance period collecting energy consumption data. So the witnessing aspect would involve observation of retrievable of that log data and/or verification in the case that we had automated data transmission that it's produced a proper set of data valid for use and energy calculations.
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So option C as previously mentioned involves a whole building approach in which a regression analysis is used to correlate building energy use with independent variables such as weather and occupancy. So in this instance witnessing takes on the form of review of those independent variables to be utilized in the analysis. The agency will need to verify that the proper utility data has been provided to the ESCO and that the assumption for equipment usage, building occupancy and other factors are considered reasonable and up to date. But in general there should also be a walk down of all the equipment under the project to verify, one, it's still in place and, two, it appears to have the ability or the capacity to perform to the guarantee.
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So option D, it's similar to option C in that it involves the whole building approach however with an option D as we mentioned earlier a computer simulation of the building is utilized. From a witnessing perspective option D may involve verification of data sets and variables for use in the computer model. But it may also involve physical witnessing of collected data measurements from selected equipment and that would be defined in your M&V plan upfront. Witnessing under option D ultimately helps to ensure that the computer models properly represent the current operating conditions and similar to option C there should also still be a walk down of equipment to verify it's in place and has the capacity to perform to the guarantee.
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So as mentioned FEMP's provided guidance in the area of M&V witness that can be found on FEMP's website at the following address. Now I'll be handing this session off to my colleague, Heather Buckberry, who will pick up with our next topic.
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Heather Burberry:
Okay, thanks Bob. So I'm going to go over the review of annual M&V reports which is one of the activities that I do here for FEMP as part of LOC activities.
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So bottom line, why are we bothering with M&V report view? At its most fundamental we're looking to verify that the contract savings guarantees were in fact met by the project and by the ESCO but we're doing that with a critical eye towards the information that's presented in the imaging report and we're not taking that at face value.
We're going to go back and look at the details to verify that items that were designed in the contract such as the M&V plan were in fact followed, that we got the measurements for various parameters that Bob described in the M&V process and that those were brought through into the report and forward through the calculations to substantiate the savings that are documented in the M&V report. Some of this part involves the financials as well looking to see that in particular the contract escalation rates for various utilities are applied properly to those numbers in each successive M&V report. Another thing we want to look at the M&V report for is to verify that report is complete overall and addresses any potential issues with the project beyond just the basic financial savings information.
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So FEMP has a tool available on their website to facilitate M&V review. This is available to the agencies. It's available in a Word format and it is intended as a template that is to be edited for you. So you can follow through with this link to download this particular report template, review template. I understand there are some agencies that have their own customized review templates that they choose to use in lieu of this particular one but I suspect that fundamentals are the same between any of those review templates.
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So I'm going to go through the six steps that are outlined in that particular review template document which takes it from gathering information in advance of the review, looking through the technical and financial information that's provided in the actual report, preparing some checklists which also includes some key questions to consider and answer as part of your review that might not be thought of otherwise and then how to package this all up and document that the review was conducted in a thorough manner and communicate that to a contracting officer. This also is an opportunity to track issues and follow up with them later on in the life of the project.
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So why are we going through this overall template activity? It's really to assure that we get some of the basic questions answered and if you are reviewing this in a vacuum without any guidance or without the full project documentation some of these issues might not get touched upon. So this is why it's helpful to use this template. But again, that common theme, "Were the savings guarantees met? Were the right financials used?"
Another really key part of this is following the M&V plan in order to substantiate the savings. All of these items need to be verified. Another set of questions that need to be considered as well are related to variations in the reporting. It is common to see ECM by ECM variations. Occasionally overall projects variations that need to be explained in the context of some technical issue or if perhaps there is some operational issue handled by the agency that need to be addressed identifying what those issues were that led to variation and then ways to correct those situations so that the guarantee could be met or perhaps the savings could be improved upon. Also who, be that the agency or the ESCO will be taking care of making those changes before the next M&V period.
Another thing that is useful in seeing in the report is what kind of feedback is coming back to the agency or the site that could be useful to them and their overall operations and how to improve this particular performance or the project. Another thing that we also look to see is not only is the current performance of the ECM being addressed but does the report indicate that the future potential of the ECM will be realized over the long term of the project as far as savings go.
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So to go through the individual steps that are in the template review document we'll start in section one which is really assembling the body of knowledge for the project and preparing the template so that it can be used in successive years. So the first step obviously is to obtain this template, either the FEMP template or the template that the agency chooses to use and then customize it for this particular project and that includes the project information and also the ECM information. There are actually in this particular FEMP template there are four different checklists. Two are at project acceptance and two are for ongoing M&V review phase and that's for the project and also at the ECM level. So this is the time to start to extract information from the individual contract schedules, insert that into the template and then begin to compare that to the reported values in the M&V report as submitted by the ESCO. So again, this is not taking those numbers at face value from the M&V report but actually going back and checking against the source document as to what those savings numbers should have been.
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Step two, the project documentation. So Bob had mentioned earlier about hand over of project information. With these very long term projects it's likely there will be multiple parties review of these M&V reports over the life of the project and it's really hard for them to do that in a vacuum if they only have the actual M&V report and maybe the original contract at best. We find that this does happen which is why it's very, very important to have all of that information for the project assembled somewhere where that information can be shared and transferred easily to new reviewers or new responsible parties within the agency for this particular ESPC project.
So that includes everything back to the original proposal document. The proposal and all of the contract modifications that may have occurred over the life of the project, the task order schedules which are really key to define the original performance of the project and it's also very helpful to get the commissioning and post-installation reports if they're available and also previous M&V reports. In any case we find that an agency reviewer may not have had access to a previous M&V report and so they were unable to determine if existing issues had been addressed in the most recent project year. So it's really helpful to assemble all that information in one place and be able to share that amongst the project team that's perhaps doing the witnessing and the report review all the way up to reporting to the contracting officer.
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So for step three basically it's taking checklists that have been prepared in the individual template and customizing that. So that will involve at the project level extracting some information from the task order schedule. It's also going to involve doing the individual ECM checklists to where the performance of each ECM. There's also some very helpful questions in this particular checklist for the reviewer to consider. There's also another blank that's really a free answer section in the template which is a place to identify areas of the performance deficiencies perhaps or areas that need to be followed up on later.
In this case we're mentioning that follow-up could be by the ESCO. In many cases the follow-up also may need to be done by the agency itself depending on how tasks and responsibilities were divided up earlier in the project. We'll talk more about those responsibilities later on. The key portion of this whole review process is identifying issues, tracking them, addressing them and closing them out before they cause larger problems for the project in terms of savings potential or equipment operational issues.
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Once all that information has been checked between the imaging report and the original force document it's time to summarize that information in a section in the template. Delete any extraneous information in the template that didn't apply to this particular project and ensure that all the various ECM and project checklists are appended to the review. At that point the reviewer has a complete standalone short review document – relatively short depending on how many ECMs are there – that can be easily compared against previous imaging reviews to check out various issues have been addressed and how performance is tracking for the project.
This helps the reviewer in that they can look back to previous review templates that don't necessarily have to go back to a previous M&V report to read the entire volume to find these potential issues again. This can be a big help to reviewers. We see M&V reports that vary anywhere from 20 pages to upwards of 400 pages depending on the size of a project and the amount of supplemental information that the ESCO chooses to include in the report. Length of the report doesn't necessarily imply level of completion in terms of what we're looking at here for the M&V report. It still is possible to produce a server report without hundreds of pages of backup documentation.
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So step five then is taking this completed review and sharing that with a contracting officer. This helps the contracting officer know that there has been a thorough technical review done by someone that's very familiar with the project, perhaps the person that actually did the witness thing along with the ESCO and that this person has reviewed that the technical performance in terms of savings has been met and that correlated with the financial savings using the utility rates that were stipulated in the contract. The other thing with this assurance is that issues either by the ESCO issues or agency issues have been thoroughly documented for future tracking. Issues in particular may need to be reviewed in terms of context payments in particular if there has been any kind of a shortfall issue as noted that's been treated to the agency or the ESCO. This also allows for an easier review of issues and how those relate to payments and how those will be resolved.
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So finally step six is that critical follow-up effect which is going back and assuring that the items have been clearly identified in a concise list there in the report review document so that various agencies or ESCO personnel can follow-up on that list easily. This is just a really great way to summarize those items in one place for quick reference in particular. So that's how to use the FEMP template to go through the actual review of the amending report. Some agencies may choose to do this somewhat differently and report it differently but it is really helpful to document that a thorough review was done, to have that in the project file and to share that with the contracting officer.
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So during the process of each of the report reviews it is I wouldn't say comment slide but it is sometimes identified as there are issues within the report that are basically disputes that will need to be worked out between the agency and the ESCO. There are standard provisions already built in to the IDIQ contract for how to handle certain disputes. There are also aspects that might be included as part of the actual M&V plan for your individual project or it might be added on later as part of a task order in the contract. Regardless of the nature of the dispute issues can certainly be flagged for the FEMP ESPC team to provide assistance to the agency.
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One type of issue that FEMP can provide assistance with is in dealing with savings shortfalls. Occasionally we'll see shortfall issues identified on ECM-like level. Less often is an overall project level shortfall. Ultimately the ESCO is responsible for the savings guarantee and for meeting the contractual requirements. Depending on who is responsible for the issue the payment situation may be impacted by that. For cases where the ESCO is responsible for the issue related to the shortfall the agency may recall part of the payments equal to that shortfall amount and then restore payments once that situation has been resolved by the ESCO.
Somewhat more complicated is if the agency is actually responsible for the shortfall which can happen on occasion. Per the contract the ESCO is still allowed to claim savings for buildings that perhaps were modified through no action of theirs or another case is when buildings may be demolished, buildings that are no longer in use. An example that has been seen recently is storm damaged buildings that are no longer in use. That certainly was not the ESCO's responsibility as to the storm but the agency has yet to resolve that situation at the building level therefore payments will continue per the task order schedule.
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So next I'm going to talk about operation and maintenance of installed equipment and how that relates to the contract terms and how that ties in to measurement and verification reporting.
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So O&M is typically defined in the contract documents. It's one way of assuring it's lifelong performance of the equipment and the ECM is maintained. Performance degradation is one possible impact due to lack of O&M. On the far extreme there may be equipment failures due to lack of O&M. At the very least a reduction of savings is a possible outcome for lack of O&M and to the point that perhaps maybe a shortfall situation is created by lack of O&M.
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So operations and maintenance is basically everything that keeps this particular equipment or system operating at its full potential over the life of the equipment or the project. That may include preventive maintenance or routine maintenance. It may include particular intermittent maintenance that's required for any given system. Basically whatever is necessary to keep that system fulfilling its original intended purpose at its original service level.
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Ultimately the ESCO is responsible for making certain that savings guarantees are met however O&M responsibilities may be divided between the site and the ESCO. If that is the case that is always determined early on in the contract portion of the work. At a minimum the ESCO has to make certain that the site staff have been trained on whatever these new systems are that are installed as part of the ESPC project. Also the ESCO monitors whether this maintenance is being handled by the site, notifies if there are any discrepancies in performance and suggests corrective action or actually provides the corrective action to solve this problem.
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One way of looking to how this particular responsibility is divvied up is the risk and responsibility performance matrix. This document actually has three areas. It's attached to the final proposal and it includes the ESCO's proposal on how to divide up these particular risks for the life of the project. Those risks are financial, operational and performance. In this particular case we're going to talk about the performance areas of which there are four.
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So under performance we have equipment performance and operations. Equipment performance from the ESCO standpoint for the initial performance is the at-acceptance or hand over the end of construction performance. But this risk and responsibility matrix also defines who's responsible for that long term performance of the equipment, how to verify that it's still maintaining that and critical what is the follow-up step if it's not meeting those intended performance parameters.
For operation side, usually the site handles the operations although in some cases in particular for very complex systems such as combined heat and power the ESCO may actually handle operations. This will be defined in the contract and in this risk and responsibility matrix and will include who handles the control of that equipment and very critical the change process, how to deal with changes that are made over the term or the operation of the equipment and how to assure that the operations are still met. So again, it's that concept of change management, that we expect that changes will happen over the life of the project but there has to be a process defined on how to handle those kinds of changes.
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Preventive maintenance, this is a really big aspect to address at the site level in particular. Very commonly this portion of the work is handed over as responsibility to the sites. Not always but it's most common for that to be handled by the site. In particular this has to be communicated with everyone at the site as to responsibilities for preventive maintenance. It not only includes getting the preventive maintenance done but actually documenting that it was done. It also includes if there is an unfortunate circumstance where that preventive maintenance is not handled what will be done in the event that performance has been impacted to a negative expense.
Equipment repair and replacement also needs to be defined in particular for these really long contracts. The contract terms may exceed the expected life of the equipment. So this portion of the risk and responsibility matrix defines the expected life, the warranties for that equipment which, again, may be much less than the term of the contract and what happens when that equipment has to be replaced. When it's known that it will need to be replaced before the end of the contract who's responsible for doing that? That needs to be defined in this particular matrix document as part of the original contract.
Again, this spells out basically the five Ws and sometimes a how. So the who for the responsibility, the what in terms of what to do if a responsibility is not met but also what equipment is actually being maintained and to a certain extent the where, when and why also of maintaining certain equipment. A key issue here is making certain that that information gets shared with the site personnel because their preventive maintenance practices may not be in perfect alignment with the stipulated manufacturer's recommended maintenance parameters.
So for agency performed O&M the task order is going to stipulate what is going to be done, by who and when, requirements for record keeping, the documentation of what was done on the equipment. Very often the ESCO will request that documentation during the M&V review process during their site verification activity. They'll ask for that from the agency and the site may or may not be able to provide that information. It's critical to have record keeping in place for O&M activities and to be able to share that with the ESCO when requested.
The task order also defines provisions for how the ESCO is going to monitor meaning how they will request that information and how they will document it. Very often they have a section in the M&V report that documents that agency's performance with respect to O&M and their reporting of O&M. The task order will also generally say, "Well what are the remedies for correcting the site or agency O&M issues that have begun to impact equipment performance?" Ultimately the ESCO is still responsible for the maintaining the savings guarantee.
So they're responsible for at least supporting O&M and documenting that. At a minimum they're going to provide the O&M manuals to the agency and the site and provide training to their personnel on how to conduct that O&M. Also as part of the annual M&V report they will end up documenting any deficiencies that they observed during their verification walk through.
FEMP has some overall guidance on how to conduct O&M as part of ESPC projects. They're available on the website. There's a planning document and also a best practices document both of which are useful for addressing O&M issues. There's also a super ESPC best practices document for actually using the risk and responsibility matrix which is actually a very short document that can provide a wealth of information for the responsibilities of the site and the ESCO over the life of the contract. In addition, we also have listed here ASHRAE guidance for the preparation and operation and maintenance and documentation of that for building systems.
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So with that I'm going to turn it over to Deb to discuss contracting issues.
Deborah Kephart:
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Thank you Heather. There are a number of other considerations when administering an ESPC task order or TO starting with developing a plan. Task orders can be for a period of up to 25 years and many agencies have found that having a written contract management plan is helpful for the successful long term contract administration. But the plan can include what will be performed, when it will be performed and by whom meaning a job description because the people will change over a long period of time.
Plan to meet at least annually to review the contract terms and conditions and to determine what actions the team should take to ensure that contracted savings continue. Also discuss any significant changes to the facility that might impact the savings. Include in the plan procedures for M&V administration such witnessing, report review and acceptance. Remember also that it takes a team. The agency team usually consists of the contracting officer and the site core who's responsible for the technical aspects of the contract but it can also include others as well. It also includes the ESCO team and remember that DOE FEMP services are also available to you.
Knowing the agency and the ESCO responsibilities is important. If an agency's agreed to perform operations and maintenance or repair and replacement ensure that it is performed as contracted. If the ESCO has retained responsibility hold the ESCO accountable as appropriate. Agencies, pay your invoices promptly. The ESCO has done their part by installing new equipment, delivering savings and submitting them in D reports. Once an ESCO submits an invoice agencies should ensure that payments to the contractor are on time.
Additionally, there will be changes and conditions over a long task order performance period. So most contracts will require modifications. Delays only make it more difficult. I hate to have to mention the last one – don't lose your records – but I do because internal audit reports have disclosed that important files and documents tend to be misplaced over a long contract term. Agencies should have a plan to retain and retrieve these critical contractual documents.
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To document project acceptance we recommend that agencies provide written notification from the agency to the ESCO confirming the full project acceptance. Then payments typically begin shortly after that acceptance. The timing of the payments, it will be stated within the task order contract and can be negotiated in various ways. Annual, at the beginning of the year is most common because it tends to reduce total contract interest but monthly, quarterly or a combination can also be negotiated.
The invoicing procedures there stated in section G of the task order contract agencies are responsible for verifying that the invoice is in accordance with their procedures. At most agencies there's a review and acceptance by the core and then by the contracting officer before invoices are paid. In ESPCs payment is tied to performance as documented in the annual M&V report. So agencies should plan in advance the procedures that are needed to ensure that M&V reports are considered in processing their payments.
For task orders for most of them with annual payments at the beginning of the performance year the M&V report will be submitted after the payment has been made. So agencies should ensure that M&V reports are reviewed and they are accepted. All disputes should be resolved timely. If there's a savings shortfall – and we're talking not by ECM; we're talking about a total contractual shortfall – a refund for the shortfall can be requested from the ESCO.
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With task order terms up to 25 years the only certainty is that there will be change and probably associated modifications. There'll be routine task order modifications to obligate funds only contract and show changes in the contracting personnel or core and there will probably be modifications to document change conditions. Some agencies although not all even document annual M&V report acceptance via contract modification.
We've listed some of the areas where you might want to think about whether or not a modification is necessary and one of those would be when remodeling part of all of the building. What you would do is consider the significance of the remodel on the ECM or the task order in total. If the remodel results in a significant impact then the task order contract should be modified to document the change and the impact on savings and payments. At the very least include documentation in the file indicating that the government's aware of the change and the decided that no modification to the schedule is required. If a building is demolished or removed from service these are almost always significant and the contract modification and revised schedule are usually required.
Regarding replacing equipment with newer technology some task orders include a technology refresh as part of the scope of work while others do not. So consider the significance of the replacement on the ECM or task order in total. If the refresh results in a significant impact on savings then the contract should be modified to document the change and the impact on savings and payments to revised task order schedules.
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The government can terminate for convenience at any time. ESPC regulations state, "Follow federal acquisition regulation part 49." The DOE's IDIQ contract will include a schedule TO5 and that provides the maximum termination ceiling for each year of the task order contract. Then frequently there is a sub-schedule that details the ceiling for each month. There might be a partial termination or a complete termination.
Partial terminations, for example, are when one building out of ten is demolished or significantly renovated. When this happens request a proposal from the ESCO identifying costs and savings attributed to the building or the ECM that will be removed. Then don't forget to remove related performance period service payments such as O&M or M&D associated with the terminated portion. Remember that if you remove ECMs with short payback periods it may result in a term that is greater than 25 years. So consider the effect on the entire task order and then negotiate an equitable settlement.
For full or complete terminations that could be such as when a facility shuts down or there's base closure, again, request a termination proposal from the ESCO. The cost will include the outstanding loan balance plus wind down costs keeping in mind anticipatory or future profits are not allowed. Then utilize schedule TO5 which is the not to exceed ceiling to negotiate an equitable settlement. Of course if assistance is needed FEMP is available. Department of Energy's Golden Field Office has the contracting and core support staff there also. I am having difficulty advancing.
Bob Slattery:
Should be on the next slide.
Deborah Kephart:
Ah, there we are. Okay. Close out. Task order close out. Task orders are contracts and so closing them out there's very little difference between the close out of the task order for an ESPC and a typical contract. The agency notifies the ESCO that the performance period is over and payments will cease. Equipment title is usually transferred at acceptance but if not it should be transferred now.
Then the ESCO will submit the final M&V report to document that savings continue to be achieved – that they were achieved during that last period. The agency completes a final performance of value for the task order in the government wide system, the past performance information retrieval system. Then lastly, if the ESCO is performing operations and maintenance or repair and replacement the agency should consider if there is a need to award a new contract for those services in the future. Back to you Bob.
Bob Slattery:
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Okay, thanks Deb. So we'll finish out our session today with an overview of FEMP's life of contract services which Kurmit had mentioned at the beginning of our session.
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So these services are provided by FEMP at no cost to agencies and it's to those agencies which have active ESPC projects under the DOE IDIQ program. Again, the concept behind providing these services is to help ensure that both the agency and the ESCO will uphold their ends of the contractual agreements.
The services themselves are facilitated by Oak Ridge National Laboratory and take place as a series of calls to all active project sites at two times during the year and that is annually within their annual M&V phase. The calls generally serve as a reminder of your upcoming M&V activity. The team can assist with training of staff who may be new to ESPC or new to this particular project and need some background and history. We can offer technical assistance with performance period issues or get you in touch with help in the area of contract administration issues.
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We'll look at the services here in a little bit more detail. So I had mentioned a series of calls and the way it's intended to be implemented is that we keep track of the performance period of all active projects and the performance period dates of your various phases. We intend to place a call to your site prior to the ESCO visit, again, as a reminder of that upcoming visit to review those activities with current staff or if there were new staff and in that light offer any training or assistance or background prior to that visit. The annual site visit will occur by the ESCO. They'll perform their audit, their M&V activity, generate that report.
As part of one of their contract deliverables they're required to upload that report to DOE's Golden Field Office in a repository there whereby we know that the M&V activity has been completed for that year. The Oak Ridge team will review that report and then make a second call to the site to just discuss with site staff, "How did the visit go? Have they reviewed the report? Do they perceive any issues? Are there any concerns, things like have there been noted equipment removals, building removals, things that may require that contract administration activity that Deb went over?" Then offer – point out all the various guidances if they're not aware of those and offer any other assistance related to findings from that report. So again, that's two service calls per year to each active report from a team member here at Oak Ridge National Laboratory.
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So in conclusion and we'll wrap up today with just a few points that ESPC is a long term partnership as we've mentioned and things will change and the agency needs to be well-versed in how to address these changes as they occur. As we've certainly hopefully made clear that both parties have a large role to play. Even though the ESCO is guaranteeing the savings the agencies can have a large impact on how the project actually performs over the years. Therefore essentially both parties are going to contribute to the success of the project.
As we've discussed M&V plays a critical role in verifying the savings within a project and quite importantly equipment performance can be highly dependent on proper O&M and proper O&M will ensure that your project savings continue after the contract term is complete.
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So with that we've finished the content portion of our session today. Any contact information that you need can be found here. If you have any questions at all with any of the topics covered you can certainly send them to Kurmit Rockwell at FEMP but if you have specific life of contract type service questions, specifics about your projects myself, Bob Slattery, or Heather Buckberry can help answer those and then certainly with any questions you may have.
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