Do you need a Performance Contract?

If you are a local government that is already considering it, you probably will benefit from performance contracting. If you don’t think you need a performance contract, but have some unfunded Infrastructure Projects, there is a good chance you could benefit from this manner of procurement as well.

That was easy – but there are questions to consider before moving forward with a performance contract.

What is a Performance Contract?

Before digging into some hard questions, let’s revisit the basics about performance contracting. It is a procurement tool used by local governments to partner with an Energy Service Company (ESCO). The ESCO will develop and install infrastructure projects that increase energy efficiency and guarantee the energy savings. The energy savings are measured and verified, any shortfall must be paid by the ESCO. The costs savings associated with a Guaranteed Energy Savings Performance Contract are required to be greater than the cost of the project. Basically, new infrastructure is installed that MUST be budget neutral for the local government.

If it sounds too good to be TRUE then it probably IS.

Said by many skeptics

One of the biggest challenges with any Performance Contract is the doubt associated… if it was that easy, why haven’t we done it before? Why isn’t everyone doing it? While questions are typically good, these types of questions will mostly limit progress, no matter the answers provided. Here are a few more constructive questions:

How do we determine the real potential benefits without making a significant resource investment?

Believe it or not, most Energy Service Companies will conduct a financial benchmark at no cost – this will at least provide enough data to determine whether or not it is worth investing more resource time.

What types of infrastructure can be addressed?

Again, many Energy Service Companies will at least provide a benchmark and try to ascertain the most likely upgrades to produce costs savings. I’ve seen local governments get new roofs, windows, HVAC, solar panels, LED lighting, upgrades to water and wastewater utilities and many other upgrades.

Will energy savings really pay for everything?

Probably not. Thankfully, there are other savings that qualify for this type of program in Florida. This type of procurement is covered under F.S 489.145. Similar programs exist in other states, but what is allowed is goverened by each states laws.

A program that is ONLY focused on energy savings may not address failing infrastructure, or worse, include energy savings devices attached to aging assets that will fail and need to be replaced as a capital expense. Some performance contracts have not panned out as expected do to this behavior.

Should we just put out a RFP to get the best deal?

This is where it gets interesting… because the most appropriate answer is “it depends”. The best solution is to secure a partner that will develop a complete list of capital needs, financial opportunities and co-author the best solution with you.

A larger municipality that has already successfully conducted an RFP in the past could find future success following the same process that has been in the past. There could also be significant benefits to piggybacking on another local governments procurement that closely matches your needs.

Can we really piggyback a performance contract?

Yes, there are numerous examples in Florida using piggyback contracts to procure a Guaranteed Energy Savings Performance Contract.

How do we know who to trust?

This is a very good question and most likely many will suggest that “you can’t trust anyone.” The real answer is those that deserve trust actually earn it. A good ESCO will seek to become a trusted advisor and help you understand needs while progressing through a prescribed process. Of course, you could always look to a Local Government Consultant that has first hand experience in Performance Contracting to help you through it.

Who are the Energy Savings Companies completing Performance Contracts in Florida?

The National Association of Energy Service Companies has an accreditation process and many listed on their website do work in Florida. The companies that have a strong presence in Florida typically participate in the FCCMA Annual Conference.

What if I have more questions?

Please contact us. We do not represent an ESCO, but ave first hand experience helping cities in Florida secure an Energy Savings Performance Contract through a RFP process as well as through Piggyback. Whether you have a potential partner in mind or are starting from scratch, we can represent your local government’s needs.