Final Rule Highlights of Energy Savings Performance Contracting

On April 10, 1995, the Department of Energy and the Federal Energy Management Program published in the Federal Register the final rule for Energy Savings Performance Contract Procedures and Methods. The Rule establishes a pilot program to test for five years the concept of accelerating installation of energy conservation measures in existing Federally owned buildings through energy savings performance contracts. Such contracts typically provide for installation of energy conservation measures financed with private sector funds which are repaid out of the resulting energy cost savings over a period of time. A successful pilot program is expected to:

boost the level of energy efficiency investment significantly beyond what can be purchased with appropriated funds;
contribute to achieving ambitious national energy efficiency goals;
demonstrate the effectiveness of innovative public/private partnerships; and
improve productivity and the environment.

DOE published the notice of proposed rulemaking under section 155 of the Energy Policy Act of 1992 on April 11, 1994. Section 155 revised the legislatively mandated policies with regard to energy savings performance contracts originally set forth (known as "Shared Energy Savings" contracts) in sections 801-804 of the National Energy Conservation Policy Act. DOE held a public hearing on June 1, 1994, and the closing date for receipt of written comments was June 10, 1994. DOE fully considered all of the suggestions and arguments made in the comments in revising the proposed regulations and the draft model solicitations. The final rule, issued on April 10, 1995, had an effective date of May 10, 1995. Subsequently, on April 18,1995, a correction to the rule was published to make the rule effective April 10, 1995.

With the issuance of this final rule, Federal agencies have the regulatory flexibility to comply with the requirements of Executive Order 12902, and the subsequent Executive Order 13123, which superceded EO 12902 on June 3, 1999. Introductory material to the rule suggests that what is now necessary is "action by senior agency officials, an appropriate agency priority on employing energy savings performance contracts, development and maintenance of a trained cadre of dedicated procurement personnel, and accountability for results". The final rule, which creates Title 10, Code of Federal Regulations (CFR) Part 436, Subpart B-- Methods and Procedures for Energy Savings Performance Contracting covers the following topics. Key features of selected topics follow.

436.30 Purpose and scope.
436.31 Definitions.
436.32 Qualified contractor lists.
436.32 Procedures and methods for contractor selection.
436.34 Multiyear contracts.
436.35 Standard terms and conditions.
436.36 Conditions of payment.
436.37 Annual energy audits.
436.38 Terminating contracts.

Purpose and Scope

As directed by section 801 of the National Energy Conservation Policy Act, the rule not only sets forth methods and procedures which apply to Federal agencies, but achieved the directive to substitute regulations for certain provisions in the Federal Acquisition Regulation which are inconsistent with section 801 as amended and which can be varied consistent with their authorizing legislation. The Federal Acquisition Regulatory Council concurred with the final rule. Significantly, section 436.30 acknowledges that Federal Acquisition Regulations (FAR) apply, however provisions of the 10 CFR 436 Subpart B are controlling with regard to energy savings performance contracts notwithstanding any conflicting provisions of FAR and related agency regulations. Additionally, subparagraph (d) provides guidance for agency interpretation of the intent of the subpart and suggests that "The permissive provisions shall be liberally construed to effectuate the objectives of Title VIII of the National Energy Conservation Policy Act, 42 U.S.C. 8287-8287c."

Qualified Contractor Lists

DOE has developed a questionnaire to solicit statements from firms seeking to be qualified.
The rule sets forth minimum criteria for qualified firms.
Agencies may use DOE list or if electing to develop their own list consistent with questionnaire and criteria in rule.
DOE has established a list of qualified firms. DOE Qualified Contractor List may be obtained by calling FEMP Help Desk at 1-877-337-3463.
The list shall be updated at least annually or more often as necessary.

Procedures and methods for contractor selection

General

An Energy Service Company (ESCO) must be qualified to be awarded a contract.
Agencies shall publish in Commerce Business Daily synopsis of proposed contract action.
Agencies may use a representative sample of facilities as the basis of selecting a firm for award.
Reduces transaction cost of procurements for large Federal installations.
Agencies may use a two-step selection process where selection is made from proposals for estimated energy cost savings based on a preliminary survey and award is conditioned upon selected firm performing detailed audit to provide guaranteed energy cost savings within a specified percentage of estimated savings.

Unsolicited Proposals

Agencies may accept unsolicited proposals from firms on qualified list.
Does not have to meet "unique and innovative" test in FAR Subpart 15.5.
Agencies must announce in Commerce Business Daily intent to consider unsolicited proposals and inviting other qualified firms to submit proposals.

Cost and Pricing

Cost accounting standards are not required.
Certified cost and pricing is not required.

Multiyear contracts

Prior to award Federal agency need not have appropriated funds adequate for total costs of contract.
The agency needs only to have funds to pay for energy cost savings scheduled to be achieved during the first fiscal year of the contract.

Standard Terms and Conditions

Third Party Financing

Permits financing source to perfect a security interest in the energy efficiency measures used, subject and subordinate to the rights of the Federal Government.
Government may consider assigning to the financing source the ESCO's rights and responsibilities under a termination for default.

Conditions of Payment

Payments made to contractor only from funds made available to agency for energy and related operations and maintenance expenses.

Annual Energy Audits

Annual energy audits, to verify annual energy cost savings, shall be conducted by agency or contractor as specified in contract.