Of Energy Performance Contracts
A Comprehensive Review of an energy performance contract ensures:
1) that only appropriate charges have been made to the project account,
2) that terms of the contract have been respected, and
3) that savings claims are valid.
Cost
Compliance
Energy Performance Contracts usually clearly define chargeable items such
as engineering and project support, mark-ups on outside purchases, guarantee
fees, etc. The cost compliance
review ensures that these items have been correctly charged to the project.
Excessive charges would result in delaying final payment of the project and the
owner’s participation in savings.
The major portion of the cost compliance review should be performed
immediately after the construction phase. Follow-up
work may be needed later in the Savings stage.
Contract
Administration
A review of contract administration practices of the Contractor ( Energy
Service Company or ESCO) will ensure that the principles of the Contract have
been respected and that all documentation is in order.
With complex contract forms that are foreign to most building managers,
the owner needs to verify that it has not unwittingly accepted responsibilities
that should have remained with the ESCO. Reviews
would, for example, be made of minutes of meetings to determine that any changes
to the responsibilities of the parties are covered by appropriate contract
amendments or change-orders.
Clearly written change orders are part of good contract
administration procedures and indicate agreement by both owner and ESCO of a
change in responsibilities. This is
key to avoiding disputes in the long-term.
A subset of contract administration is the ESCO's reporting
procedures. These vary from ESCO to
ESCO and more often from contract to contract.
Some reports offer information which is straight-forward, relevant, easy
to digest and understand. Some do not. A
third-party review of these on behalf of the owner may shed light on
questionable items and assist the owner in obtaining appropriate data in the
format best suited to the circumstances.
Review of contract administration and ESCO reporting practices should
take place during the construction phase and continue bi-annually thereafter
during the Savings period. An early
review will assist owners in taking action should changes be needed.
Savings Claim Compliance
The
contract and the feasibility study should fully define the procedures intended
to be used for determining actual savings.
Ultimately, actual savings claims reveal the process actually used.
The industry does not yet have complete standards on this complex process
of determining savings, so the owner must rely on the ESCO’s interpretation of
what constitutes common industry practice.
A review by an experienced third party will provide the owner with the
assurance that agreed or good standard Monitoring and Verification methodologies
have been followed and that savings claimed have been properly stated.
There are four parts of any comprehensive review of savings claim
compliance, each building on the preceding one.
a) Assessment of the
baseline data analysis used for savings computation. Suitability of the data for
the purpose and absence of bias are the key elements of this part of the review.
Ideally it should be conducted after the feasibility study, before
construction and the first savings computations, to avoid disagreements in
future savings claims.
b)
Verification that current savings claims follow the agreed methodology.
The first savings report should be scrutinized and then the first full year's
report. Bi-annual review of savings
reports is recommended through the rest of the Savings period.
c) Review of all claimed
baseline adjustments are often the most controversial part of any savings claim.
The first baseline adjustment should be examined to ensure that procedures
follow the terms of the contract. Bi-annually
thereafter all baseline adjustments should be reviewed.
d) Review of owner changes
to the facility to ensure that all baseline adjustments in the owner's favour
have been considered. This review
should be conducted bi-annually, beginning at construction completion.
Energy
Performance Contracts have a duration these days of around 10 years.
Most likely in the tenth year there will be nobody either on the
owner’s or ESCO’s team who started with the contract.
This type of Comprehensive Review acts as corporate memory for future
management, validating and documenting proper implementation of the contractual
responsibilities of the parties to the contract.