United States: DOE’s New $55 Billion ESPC Solicitation

Last Updated: April 1 2015
Article by Amy S. Koch, Lorraine M. Campos and Ellen L. Bastier

Most Read Contributor in United States, October 2017

A Move from "Show me the Money" to "Share the Money"

On March 23, 2015, the U.S. Department of Energy (DOE) released a Request for Proposals (RFP) for the implementation of energy savings performance contracts (ESPCs) at any U.S. federal government site worldwide. The intent is to award up to 12 indefinite delivery, indefinite quantity (IDIQ) contracts, with a target of two of those contracts to be awarded to two small businesses. Although bidding is limited to energy service companies, as explained below, this is still a great opportunity for teaming and/or subcontracting and financing some of the most innovative projects of this decade. With smaller government spending and more focus on holding contractors accountable, DOE's ESPC program may be a blueprint for government contractors moving forward. The total contract ceiling is $55 billion.

Key Take-Aways

  • The deadline for responses is April 29, 2015, at 9 a.m. ET.
  • The RFP states that "particular emphasis should be placed on the assessment of renewable energy opportunities."

The contracting process DOE is using for this solicitation (Solicitation No. DE-SOL-0006380) is the two-step "IDIQ" or "indefinite delivery/ indefinite quantity" contracting process. IDIQ contract awards can be viewed as "hunting licenses" for winners to bid for specific projects under delivery orders, or task orders against the IDIQ contract. Task order contracts are subject to competition among entities already awarded an IDIQ contract for specific projects or services. Ultimately, DOE is using the IDIQ contracting process to issue Energy Savings Performance Contracts (ESPCs).

Background on DOE'S ESPC Program

ESPCs allow federal agencies to contract with contractors for various energy and energy-savings projects, with limited to no up-front capital costs, minimizing the need for Congressional appropriations. As authorized by 42 U.S.C. section 8287, an ESPC is a contract awarded to an energy service company (ESCO) for up to 25 years that provides for the design, acquisition, financing, installation, testing, operation, and maintenance and repair of identified Energy Conservation Measures (ECMs) at one or more locations. Under an ESPC, the ESCO incurs the costs of project implementation, including audits, acquiring and installing equipment, and training personnel, in exchange for a predetermined price (or percentage of savings). Payment to the ESCO is contingent upon realizing a guaranteed stream of future savings, with excess savings accruing to the federal government. At the expiration of the multi-year ESPC, the counterparty federal agency assumes all of the cost savings.

Source: DOE Federal Energy Management Program

The RFP

DOE's RFP is intended to create a list of qualified contractors capable of implementing ECMs that reduce energy and water consumption or costs, increase renewable energy use, and/or reduce energy and water-related O&M costs. Some of the suggested categories of ECMs include
(RFP, Attachment J-3):

This is a potentially very large solicitation – $55 billion – and the task order ordering period is 60 months, with an additional 18-month "Option 1 Ordering Period." The anticipated ordering periods are:

Base Ordering Period: February 24, 2016 – February 23, 2021

Option Ordering Period 1: February 24, 2021 – August 23, 2022

The contract award pool ceiling will be applied to task orders on a first-in, first-awarded basis.

Some of the key issues potential bidders and subcontractors should consider include:

Renewable Energy and Energy Storage Renewable energy is emphasized in the RFP, which may present some unique opportunities for inside-the-fence renewable energy projects. Attachment J-3 contains a list of ESPC technology categories and ECMs that may be evaluated as part of a project. However, the list is not intended to be inclusive of all potential ECMs that may be authorized under a task order:

A suggested list of ECMs that shall be considered during the development of a TO project is provided in Attachment J-3. Particular emphasis should be placed on assessment of renewable energy opportunities. This IDIQ contract may be modified in the future to add ECMs that are not currently authorized but may be subsequently authorized. The contractor is encouraged to seek out all energy conservation opportunities present in a given facility. (RFP, C.2.1)

One of the listed categories on Attachment J-3 is "Electrical Peak Shaving/Load Shifting," and some of the ECMs suggested in the various categories include thermal energy storage, demand reduction, demand response controls, fuel cells, and power quality upgrades, all of which suggests that electrical energy storage could also have a role as an ECM.

Who Can Compete Eligible bidders are limited to companies that are currently listed on DOE's "Qualified List of ESCOs," or are being considered for acceptance and have been accepted by the time of the award.

However, contracting teams are allowed and, for such teams, only the prime contractor must be on the DOE Qualified List of ESCOs, or be under consideration for acceptance (Solicitation, M.6). Joint ventures are also acceptable (RFP, L.9.a). It should be noted that "key" subcontractors will be required to execute letters of commitment, which will be included in a bid (RFP, Attachment J-18).

Financing Arrangements In order to allow for the third-party financing that is critical to so many ESPC contracts, the RFP contemplates that the federal agency issuing the task order (ordering agency) will permit a financing source to establish a security interest in installed EMC(s), subject to, and subordinate to, its rights (RFP, H.9). In addition, an ESCO may be required to assign to its lenders some or all of its rights under a task order. The ordering agency is required also to consider:

  • Requests for assignments of monies due or to become due under a task order, provided the assignment complies with the Assignment of Claims Act. Requests should be provided to and approved by the ordering agency before any assignment is made.
  • Requests for the ordering agency to provide financiers copies of any cure or show-cause notice issued to the ESCO.
  • Requests by financier or secured interest holders for extension of response time to cure or show-cause notices (RFP, H.9).

In the task order phase, a bidder/contractor is required to engage in a competitive selection process for financing (RFP, H.7). In addition, during the term of a task order, an awardee is encouraged to periodically (every three to five years) evaluate the potential for refinancing or restructuring its task order loan projects, and may be required to provide a debt modification plan with its task order bid or shortly after being awarded a task order. Not surprisingly, the RFP also encourages the awardee to "consider" applying some or all of the resulting financial proceeds to the benefit of the task order project (RFP, H.7.3).

Financial, Tax, and Other Incentives The IDIQ contract specifies that the contractor will be responsible for determining the availability, value, and cost-benefit of any applicable financial, tax, or other incentives for a project, including energy efficiency and renewable energy incentives, emission reduction credits, and renewable energy credits.

Unless otherwise specified in a task order, interest in and ownership of financial, tax and other incentives resulting from a project produced on-site at a federal facility will remain with the ordering agency (RFP, C.12). However, there is at least one exception. The RFP recognizes that nongovernmental ownership of the affected energy efficiency and renewable energy and water asset may be required in order to capture the benefits of Investment and Production Tax Credits and Modified Accelerated Cost Recovery System accelerated depreciation.

Unsolicited Proposals The IDIQ contract gives awardees the opportunity to propose specific projects to federal agencies. In fact, it allows ESCOs to actively market ESPC programs and their IDIQ contracts to federal agencies.

If the ESCO subsequently submits an unsolicited proposal to a federal agency as a result of such marketing, the ordering agency must provide fair opportunity to all IDIQ awardees to be considered for award of a task order (Solicitation, H.4.C and H.4.2.A).

Bid Preparation Concerns

DOE will award IDIQ contracts to bidders whose proposals conform to the solicitation and are considered to provide the "best value" to the government with price-related and other non-price factors considered in accordance with FAR 15.101-1 (Tradeoff Process). The awards will be made based on the following five factors listed in descending order of importance, with Factors 3 and 4 equal in importance (RFP, M.3):

  1. Corporate Technical Experience and Management Approach for ESPC Projects
  2. Financial Capability
  3. Past Performance
  4. Small Business Participation
  5. Pricing

The bid preparation requirements are fairly standard, but in the context of an ESPC proposal, bidders may want to consider a few issues:

Financing The financial capability evaluation standard requires the following:

The prime contractor must demonstrate that it: 1) has sufficient capital resources to self-finance or the ability to obtain third party financing for the design, construction, and operation of an ESPC project; 2) understands the financial risks associated with this contract; and 3) has the ability to recover the investment over the life of the project (expected to be no more than 25 years)
(RFP, L.11).

Part of the information DOE is requiring a bidder to provide is a list of the financiers that have expressed an interest in financing energy conservation projects for the bidder. In addition, the RFP states:

The prime contractor shall provide copies of letters from the financiers demonstrating their interest. The prime contractor shall describe the proposed financing methodology and procedures that will typically be used to obtain [task order] financing with the most advantageous terms and conditions (RFP, L.11, Tab (B) description).

The RFP also requires the prime contractor to describe proposed or already-used business practices to minimize financial risk as part of its ability to manage monetary risk and withstand long-term payback periods (RFP, L.11, Tab (C) description).

Small Business Participation The small business participation bid requirements are fairly standard in the world of government contracting, but may be new to potential partners of ESCOs. All ESCO prime contractors must submit a Small Business Participation Plan in accordance with FAR Part 15.304. For planning purposes, the prime contractor must use a total contract value of $4.6 million.

In addition, all prime contractors, except small businesses, must submit a Small Business Subcontracting Plan that meets the requirements of FAR 52.219-9 (RFP, Attachment J-16), and which must be consistent with the commitments the prime contractor made in its Small Business Participation Plan.

DOE "anticipates" that a bidder's subcontracting plan "shall contain at least the following goal(s)" (RFP, L.13, Tab (B)):

The RFP cautions that the Small Business Subcontracting Plan "shall" reflect the bidder's best offer because DOE "intends to incorporate it into the IDIQ contract without discussion at time of award."

These goals may be difficult for some ESCOs to meet. However, given that Small Business Participation is a factor for scoring and these IDIQ contracts will lead to task orders over the next few years, we believe this is an opportunity for differentiation among the ESCOs and for small businesses to gain traction in this area of government contracting.

Pricing Pricing is the least-weighted of the five factors that DOE will consider in awarding the IDIQ contracts. Nevertheless, bidders will need to be careful in preparing the required materials.

A bidder is required to submit its maximum delivery percentages and interest rate spread for projects, as well as any information it believes is necessary to support this spread. It is also required to submit a sample task price proposal for a sample task project described in Attachment J-25, as well as four task order schedules. "Adequate" pricing details must accompany the price proposal, including its estimating procedures, and conditional assumptions.

Conclusion

Whether this solicitation actually results in $55 billion in task orders is going to depend a great deal on whether the federal agencies embrace ESPCs. There are three reasons to be mildly optimistic about its potential success:

First, ESPCs by their very nature do not cost federal agencies new money; they are designed to compensate contractors from the cost savings created by EMC projects. If a task order is properly designed, an agency's budget costs – including capital costs – will be "scored" by the Office of Management and Budget on an annual basis during the term of the task order, rather than all at once in the first year of the contract. This is important because if the entire cost of a multimillion-dollar ESPC contract is "scored" only in its first year, an agency can over-run its budget for energy-related services for that year.

Second, the RFP specifically gives IDIQ contractors the right to market and propose projects to federal agencies. This gives contractors an opportunity to find and develop possible EMC projects, rather than waiting for projects to be proposed by agency officials with more pressing concerns.

Third, on March 19, 2015, the administration set new goals for massive reductions in energy and water use by federal agencies in an Executive Order as part of its sustainability initiative. The IDIQ contracting phase of this RFP should be concluded by the start of the next administration, setting into motion a program in which agency officials will have a legal obligation to review proposed new EMC projects, regardless of the views of the next administration. It is worth noting that ESPCs enjoy some bi-partisan support; a current Senate bill would direct the Congressional Budget Office to calculate the cost savings from an ESPC contract on a net present value basis, to put both the costs and savings of such contracts into the same discretionary spending accounts, when it considers the budgetary effect of agency liabilities.

Given the relatively short deadline for responses to the RFP, entities interested in participating in DOE's ESPC program should begin thinking now about how they might team up with a qualified bidder, if they are not on DOE's List of Qualified ESCOs; or if they are, what subcontractors they might need and how to identify and/or contract with small businesses. Negotiating the terms of participation in a bid can take a bit of time, and the actual preparation of a bid response is generally always more time-consuming than anticipated.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.