Defense Energy Program Policy Memorandum (DEPPM) 94-2

DUSD (ES/CI)

Memorandum for Assistant Secretary of the Army (Installations,Logistics & Environment)
Assistant Secretary of the Navy (Installations & Environment)
Assistant Secretary of the Air Force (Manpower, Reserve Affairs, Installations & Environment)
Director, Defense Logistics Agency
Director, Defense Commissary Agency
Director, National Security Agency
Director, Defense Mapping Agency

Subject: Energy Savings Performance Contracting

This memorandum establishes guidelines for Energy Savings Performance Contracting as authorized by 42 USC 8287, 42 USC 8251 through 8261, 10 USC 2865 (c), and the Energy Policy Act of 1992, and encouraged by Executive Order 12759.

Policy

The methods outlined in the attached guidance shall be used by the Military Departments and Defense Agencies to aggressively pursue Energy Savings Performance Contracting wherever appropriate, in order to streamline the acquisition process and reduce the time and cost to the Department and the private sector.

Responsibilities

The Department of the Army is hereby designated lead agent for the implementation of the procurement procedures and permanent chair of the DoD Energy Savings Performance Contracting Steering Committee. The Department of the Army, in coordination with the other Defense Components, has authority and responsibility to propose any changes to this policy to this office, which will improve application of this innovative service contract concept. It is imperative that full use be made of these innovative procurement techniques to maximize available energy savings and to meet the Energy Savings Performance Contracting goals assigned by DepSecDef in his memorandum of March 13, 1991, (each Military Department initiate at least three such contracts per year).

Sherri Wasserman Goodman
Deputy Under Secretary of Defense
(Environmental Security)

Energy Savings Performance Contracting (ESPC) Guidance

Background

Energy Savings Performance Contracting is a contracting procedure in which a private contractor evaluates, designs, finances, acquires, installs and maintains energy saving equipment for a client, and receives compensation based on the performance of that equipment. The conditions of the contract determine the level of compensation to the contractor, with the remainder of the savings retained by the client. Current statute allows DoD Components to enter into such contracts for facilities owned by the Component. This type of contracting provides an alternative method of implementing energy saving projects, when installation resources such as manpower, technical expertise or funding are not available. The Deputy Secretary of Defense, in his 13 March 1991 memorandum titled Defense Facilities Energy Management, directed that each Military Department initiate a minimum of three energy savings performance contracts each fiscal year.

Application

Determination of project viability is based on such factors as utility rates and costs, availability of conservation opportunities, projected building use requirements, ease of performance verification and support of the base contracting, engineering and legal personnel. Typically, large facilities or large groups of facilities with older energy consuming systems (and therefore large utility bills) are good ESPC candidates. A preliminary technical and economic analysis must be conducted to determine if a proposed energy conservation measure has ESPC potential, which will be based on both the Component's ability to achieve a reduction in operating costs, and the contractor's ability to obtain an acceptable return on investment

Current statute states that a Federal agency may develop a list of contractors qualified to provide ESPC services, based on qualification statements provided by those contractors, which contain, as minimum, the contractors' prior experience, capabilities to perform the proposed types of energy savings services and financial information. Contractors may then be selected to conduct discussions concerning particular proposed energy savings projects, including requesting a technical and price proposal from such selected contractors, and select from those contractors, the most qualified to provide ESPC services based on technical and price proposals and any other relevant information. The list of qualified contractors must be updated at least annually.

A Federal agency may enter into a multi-year energy savings performance contract for a period not to exceed 25 years, without funding of cancellation charges before cancellation, provided such contract was awarded in a competitive manner pursuant to the above qualification procedures, and funds are available and adequate for payment of the costs of such contract for the first fiscal year. In addition, if the ESPC contains a clause setting forth a cancellation ceiling in excess of $750,000, the agency head must provide written notification to the appropriate authorizing and appropriating committees of Congress of the proposed cancellation ceiling, at least 30 days before the award of that contract.

The contractor shall only be compensated for actual, measurable energy savings, hence, the ESPC contract must accurately define the energy baseline, or projected energy use, had the ESPC project not been implemented and the method with which savings will be measured. Additionally, an annual energy audit must be conducted to verify savings and ensure payments are accurate. The measurement technique will be based on project complexity: the savings from the replacement of electrical equipment may not need to be metered, whereas heating modifications most likely would. In some cases, consideration must be given to other factors that affect energy demand, such as changes in mission, population, space utilization or weather.

Energy savings performance contracts shall specify the terms and conditions of any government payments and performance guarantees. The contract shall provide for a guarantee of savings to the agency and shall establish payment schedules reflecting such guarantee, taking into account any capital costs under the contract. Any such performance guarantee shall provide that the contractor is responsible for maintenance and repair services for any energy related equipment, including computer software systems. Agencies may incur obligation pursuant to such contracts to finance energy conservation measures, provided guaranteed savings exceed the debt service requirements.

Government payments may be made from annual utility and related operations and maintenance funds. The aggregate annual payments by an agency to the utilities and energy savings performance contractors, under an energy savings performance contract, may not exceed the amount that the agency would have paid for utilities and related operations, maintenance and repair costs, without the energy savings performance contract as estimated by the baseline procedure specified in that contract.

An agency may permit receipt of unsolicited proposals for ESPC services from a contractor that such agency has determined is qualified to provide such services, provided the agency facility manager place a notice in the Commerce Business Daily announcing they have received such a proposal and invite other similarly qualified contractors to submit competing proposals. The agency may enter into an ESPC with such a qualified and competing contractor, consistent with established procedures and methods.

It is understood that all Energy Savings Performance Contracts procedures will be conducted in accordance with the latest version of the Federal Acquisition Regulations, the Defense Acquisition Regulations and any specific statutes pertaining to these unique services contracts.

Simplified Energy Savings Performance Contracting Procedures Through Establishment and Selection of Prequalified Firms

Pursuant to 10 U.S.C. Section 2865 (c), the following has been developed to simplify procedures for Energy Savings Performance Contracting (ESPC) services:

Annually, as the lead agent for ESPC, the Department of the Army will initiate the publication of a Commerce Business Daily (CBD) notice soliciting for firms desiring prequalification for future ESPC contracts. The Department of the Army will be responsible to furnish a list of prequalified contractors to the Services and agencies. Contractors will be qualified for one year. Contractors competitively selected by regulated public utility companies to provide energy savings performance contracting services shall be considered prequalified. Firms shall submit a statement of qualifications, prescribed by the Government's Qualification Instructions (Enclosure 1) and Qualifications Evaluation Statement (Enclosure 2).
A Qualification Review Board (QLB), comprised of representatives of each service, will review the submitted information and determine those firms qualified to perform ESPC work based on the criteria contained in the Government Evaluation Guidelines (Enclosure 3). Once approved, a firm will be considered prequalified for a period of one year. A firm at any time may also submit a statement of qualification and request a review for prequalification, which may or may not be considered for a particular project, depending on the proximity of the submission to that project. Firms prequalified will be automatically considered for all specific projects without having to submit any further expression of interest. The QLB shall notify in writing those firms determined not qualified and the reasons they were not qualified.
From the list of prequalified firms, provide by the lead service, a technical board, chosen at the discretion of the ESPC Component project proponent, will select three firms judged to be capable of performing the requirements of the specific project. The technical board will provide a written rationale for the selection of the firms in the form of a justification package to support a Determination and Findings approved by a Contracting Officer.
Upon approval of the Determination and Findings, a site specific solicitation shall be issued to the selected firms requesting abbreviated price and technical proposals. Once proposals are received, a technical board will evaluate the firms' proposals and, [if there is more than one respondent] prepare a report to the Contracting Officer including a rationale for ranking the responding firms and recommending the single firm with which the Government should conduct negotiations.
Upon approval by the Contracting Officer, negotiations may then proceed in accordance with established acquisition procedures. Should negotiations not result in an agreement satisfactory to the Government and the selected firm, the Government may approach the firm next ranked and attempt to negotiate a contract. Should it be determined desirable, the Government may make multiple awards for separate portions of a requirement to any of the selected firms.

Procedures for Direct Negotiation with ESPC Contractors That Have Been Competitively Selected by Utility Companies

Pursuant to 10 U.S.C. 2865(c), the following procedures are recommended to simplify the method of contracting for Energy Savings Performance Contracting services through direct negotiation with ESPC contractors that have been selected competitively and approved by the utility company serving the defense facility concerned:

Firms which have been competitively selected by regulated public utilities to provide Energy Savings Performance Contracting services shall be considered prequalified and competition may be limited in accordance with 10 USC 2865(c)(2)(B). To ensure that utility companies' qualification standards meet those of DoD, the utility customer should request that the utility company provide a statement describing the competitive process used in contractor selection.
When such a specific Energy Savings Performance Contract opportunity is identified, a notice shall be placed in the Commerce Business Daily indicating that competition will be limited to those contractors competitively selected by the utility as authorized by law.
From the list of available contractors competitively selected by the utility in question, a technical board may select up to five such firms judged to be capable of performing the requirements of the specific project. A written rationale for the selection of the firms shall be provided in the form of a justification package to support a Determination and Findings approved by a Contracting Officer.
Upon approval of the Determination and Findings, a site specific solicitation shall be issued to the selected firms requesting abbreviated price and technical proposals. Once proposals are received, a technical board will evaluate the firms' proposals and, [if there is more than one respondent] prepare a report to the Contracting Officer including a rationale for ranking the responding firms and recommending the single firm with which the Government should conduct negotiations.
Upon approval by the Contracting Officer, negotiations may then proceed in accordance with established acquisition procedures. Should negotiations not result in an agreement satisfactory to the government and the selected firm, and there is more than one respondent, the government may approach the firm next ranked and attempt to negotiate a contract. Should it be determined desirable, the government may make multiple awards for separate portions of a requirement to any of the selected firms.
If only one utility-selected firm exists and the Government determines a satisfactory contract cannot be concluded, the Contracting Agency should consider competing the requirement using the Government's prequalification procedures.
If the utility offers a demand side management program that includes rebates and/or co-funding of conservation measures, an additional agreement with the utility may be needed, depending on negotiations with the parties involved.

Government Qualification Instructions for Energy Savings Performance Contracting

Introduction
The Government intends to award energy savings performance contracts for energy conservation services. A successful awardee will be required to provide, at no capital cost to the Government, all management, labor, material, equipment, and operations and maintenance services during the contract term, and to reduce the amount and cost of energy used in the buildings and/or facilities specified in the statement of work. In return, the contractor will receive payment based on the energy cost savings achieved from its installed energy conservation projects. If no energy cost savings are achieved, no payment will be made.

Energy savings performance contracting projects are subject to established acquisition requirements similar to projects solicited and contracted by standard procedures.
Purpose
The attached Qualifications Questionnaire, when completed by an offeror, shall be submitted for evaluation by the Government. The purpose of the evaluation is to establish a Prequalified List of Firms. The firms on the Prequalified List are eligible for one year from 1 March through February 28/29 based on requests for qualifications statements in early January. Firms must annually resubmit their application to be qualified for the next year.

The types of services which may be required in an Energy Savings Performance Contract include, but are not necessarily limited, to the following:
1. Technical and price proposals detailing comprehensive energy services for reduction of energy consumption or demand at a particular facility. Energy audits will be required to be performed by the contractor.
2. Design, acquisition, and installation of new equipment or modifications to existing equipment to improve the energy efficiency of heating, ventilation, air conditioning (HVAC) systems, lighting systems, building envelopes, and domestic hot water systems.
3. Operation, maintenance, and repair services for the term of the contract and Government personnel training for the new and modified equipment.
Evaluation Factors
To be included on the Government's prequalified list for Energy Savings Performance Contracts, an offeror must have a satisfactory rating based on [in order of most to least important] the offeror's: (1) experience and demonstrated technical capability [meaning range of management, engineering, services, and other assets owned by the company or divisions of the company or a parent firm and demonstrated record of performance in comparable energy savings projects], (2) financial condition and resources, (3) energy baseline and savings calculation capability [meaning demonstrated ability to provide technically acceptable energy use audits and estimates of energy reduction as well as savings performance verification], and (4) available staff, including sub-contractors [meaning qualifications of individuals who will oversee and provide engineering, construction supervision and oversight of installation, operation, etc., services during the project]. Each offeror will be evaluated on the above factors, with weighting applied on the offeror's ability to meet or exceed those factors. The Government reserves the right to exclude any offeror(s) from a project when past performance indicates the possibility that the contract terms will not be met.
Submittal Requirements
Offerors shall complete and submit only the qualifications questionnaire and sufficient attachments to provide complete and concise, relevant information. Submit six (6) copies of the completed questionnaire by (date to be solicitation specific) to:

Commander, USA Engineering Division, Huntsville
Attention CEHND-EN-PM
P.O. Box 1600
Huntsville, AL 35807-4301

Energy Savings Performance Contracting Qualification Statement

NOTE: FIRMS REMAIN QUALIFIED FOR A ONE YEAR PERIOD
STARTING: _________

General Information
1. Name and address of firm:
  
  ______________________________
  ______________________________
  ______________________________
  ______________________________
2. Indicate type of ownership of firm:
  
  __ Partnership
  __ Corporation
  __ Sole proprietor
  __ Branch Office of _______________________
  __ Joint Venture (List venture partners)
  _________________________
  _________________________
  _________________________
  __ Small Business
  __ Small Disadvantaged Business
  __ Handicapped Workshop
  __ Other (Explain)
3. Indicate previous names of business:
  
  ______________________
  ______________________
  ______________________
  ______________________
4. Name, title, and telephone number of person(s) authorized to represent the firm.
  
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
  ______________________
5. Identify associates and/or subcontractor(s) that you plan to use for federal ESPC projects. If your firm is using an associate and/or subcontractor(s), explain the functions of both your firm and your associate/or subcontractors such as project management, technical/engineering services, construction, and maintenance services and the financial responsibilities of each firm. (Provide attachment when required.)
6. Has your firm been competitively selected by a utility company under a demand side management bidding program to provide conservation services for commercial, industrial or residential customers? Yes ___ No ___ If yes, please identify the utility and provide pertinent information.
7. Indicate the largest dollar value of investment your firm would consider for a Federal Government ESPC contract. __________
8. Is there a particular category your firm would like to be considered for or indicate if your firm wants to be considered for a full range of technology applications (i.e., lighting, HVAC, energy management systems, etc.)
9. In what geographic area(s) would you like to be considered for energy savings performance contracts?
Experienced and Demonstrated Technical Capability
1. List and briefly describe up to 10 projects completed or ongoing by your firm which best illustrate your range of experience relative to energy performance contracting and energy management expertise (i.e. type of technologies implemented, Federal contracting procedures experience, etc.). Provide information on the following items:
  1. Project title and location.
  2. Company Representative, Project Officer or person able to provide additional information on the project, their position and telephone number.
  3. Identify if project was for public or private sector.
  4. Briefly describe the facility including such information as function and floor space in square feet.
  5. Project cost (the total dollar amount of the contract awarded to your firm).
  6. Type of financing arranged by your organization.
  7. Terms of contract.
  8. Identify the major types of work implemented and if your firm or subcontractors did the work - if appropriate, list subcontractors.
  9. Starting and ending dates of the contract and starting and ending dates of the construction/retrofit phase.
  10. Was the construction/retrofit phase completed on schedule? If not, explain.
  11. Projected annual energy savings for each project, by month.
  12. Identify performance guarantees, if performance based energy service contract.
  13. Actual annual energy savings achieved for each project.
2. Indicate the number of years in business as an Energy Management Contractor: _____
Energy Baseline and Savings Calculation Capability
1. Provide a written description, including a list of the specific review items, of your firm's energy audit methodology. Provide a sample of a written detailed energy audit report completed for both a governmental client (preferably a Department of Defense activity) and a private sector client. Mark each report accordingly. (Provide attachment)
2. Describe the methodology which you typically use for establishing the energy baselines and the method or methods used to adjust the baseline due to facility use changes. If multiple baseline methods are used, identify applicable energy technologies for each. Provide at least 2 examples from previous projects. (Provide attachment)
3. Describe the method(s) you typically use to measure energy savings performance of installed energy conservation projects. If multiple methods are used, identify the applicable energy technologies for each. Provide documentation of at least 2 examples from previous projects. (Provide attachment)
Available Staff
1. Indicate the experience in energy management and energy conservation services of those persons in your firm or subcontracting firm(s) you are intending to utilize on projects. (Provide attachment)
2. List all professional and skilled trades which your firm customarily performs with its own employees:
Financial Condition and Resources
1. Provide copies of the most recent three years' annual reports or financial statements which have been certified by a CPA for the organization. The most recent year must be dated within twelve months of the filing of the completed Qualification Questionnaire.
2. Provide the name, address, and telephone number of the firm or CPA which prepared or certified the financial statements.
  
  ________________________
  ________________________
  ________________________
  ________________________
3. Describe the firm's financial capability, plan to acquire financing, and/or types of financing your firm has or proposes to acquire for federal Energy Savings Performance Contracting projects.
4. List all legal or administrative proceedings currently pending or concluded, conducted against your firm within the last five years which relate to procurement or performance of any public or private construction contracts.
5. Disclose whether your firm (or its predecessors, if any) has been insolvent or filed for bankruptcy within the past five years, and the conditions surrounding the bankruptcy.

Government Evaluation Guidelines Qualifications Questionnaire for Energy Savings Performance Contracting

Instructions to Evaluator

The objective of the evaluation is to determine if an offeror has the ability to perform energy conservation projects. Two rating methods are provided; one assigns a numerical score to the offeror and the other assigns an adjectival rating. The evaluator is allowed to use the rating system which they consider to be easier to use. In either instance, the evaluator's rating must be supported with a narrative explanation for each of the assigned ratings.

Numerical Rating

Each evaluator should separately review an offeror's submittals and give that offeror a rating of: 3 - exceeds satisfactory, 2 - satisfactory, or 1 - unsatisfactory, for the following factors: Experience and demonstrated technical capability, Energy baseline and savings calculation capability, Available staff, and Financial condition and resources.

The above weighting factors, when applied to the following values, shall be used to determine a numerical "score" for each firm seeking pre-qualification: Experience and demonstrated technical capability - 20 points; Energy baseline and savings calculation capability - 15 points; Financial condition and resources - 15 points; Available staff - 10 points. Offerors must have a rating of satisfactory [a minimum of 120 points of a total possible 180 points] to be placed on the pre-qualified list.

Adjectival Rating

Each evaluator should separately review an offeror's submittals and assign that offeror a rating of: exceptional - highly qualified; satisfactory - qualified; satisfactory - marginal; and unsatisfactory - unqualified to the following qualification elements: Experience and demonstrated technical capability - 35%; Energy baseline and savings calculation capability - 25%; Financial condition and resources - 25%; Available staff - 15%.

Generally, an offeror's rating of unqualified in any one category must be offset by a rating of exceptional in at least one other category, of greater or equal weight, to achieve an acceptable rating. Additionally, if an offeror receives a rating of unqualified in the factor with the highest value (as in the case of a new firm), all other factors must be rated exceptional for consideration.

Basic requirements - satisfactory score indicates adequate experience based upon:

Experience and Demonstrated Technical Capability

Project timeliness;
Comprehensive scope of energy actions included in past projects;
Demonstrated experience meeting cost estimates;
Demonstrated reliability of energy savings estimates;
Success in achieving projected savings;
Size of project. (Project investment and facility size);
Experience as Energy Service Company or Contractor;
Demonstrated ability to work around ongoing operations or mission requirements.

Energy Baseline and Savings Calculation Capability

Reasonableness and comprehensiveness of energy proposed audit methodology;
Quality of sample audits;
Reasonableness of proposed baseline methodology;
Reasonableness and accuracy of proposed energy performance measurement methodology.

Available Staff

Evidence of firm's (or subcontractor's) expertise;
Relevant project experience of individuals;
Experienced personnel sufficient to cover project task:
Technical (audit/baseline)
Engineering (design/installation)
Financial
Maintenance/service
Project management

Financial Condition and Resources

Apparent Solvency as evidenced by:
Financial soundness
Solid CPA statement
Normal and appropriate financial ratios compared to peers
Ability to obtain financing for Government projects (as evidenced by history, or
indicated by financial institution commitment.)
Absence of adverse legal/administrative proceedings such as:
Bankruptcy
Contract disputes/debarments (note: debarments disqualify)

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