Make Performance Contracting Work for Your Energy Project

06/16/2010 | By Eric Woodruff and Kenn Busch

Especially in tough economic times, building owners who want to undertake energy projects may be limited to those that require no or limited upfront investment. Performance contracting (PC), in which the upfront costs are funded over time by the resulting energy savings, is one solution that can resolve this dilemma. However, finding and hiring the right performance contractor can be complicated.

There are horror stories involving owners who lost money or paid excessively. But if you choose wisely, your initial expenses can be minimal and your facilities can profit. For the success of your facility’s energy program (and your reputation), it is critical to pick the right PC firm.

Writing an RFP for Performance Contracting

The request for proposal (RFP) is a key tool for identifying the right firm, and for public facilities it is often one of the first procurement steps. In your RFP you should require descriptions of the following elements:

The provider’s main business focus as well as length of service in the specific scope of work requested.

The provider’s process of delivering the services and verifying the results.

The provider’s ability to measure and compare the performance of your facilities against benchmarks.

At least seven references (with contact names and phone numbers) involving projects where the provider delivered a similar scope of work/services in similar facilities and climates. Within these references, the provider should also state the net benefits achieved.

The net savings for your facilities (inclusive of all costs to be paid by you).  If there is a guaranteed savings, that should be listed as well.

After you receive the proposals, the questions below can help you evaluate the providers: 

  • How many references were provided? Are there multiple references from the same organization?
  • How similar (or different) are the references when compared to your facility (size, location, function, etc.)?
  • Does the provider have a personal relationship with any of the references? Is there a conflict of interest?

In addition, when checking the references, consider the following:

  • How long ago did the reference work with the provider?
  • Why did the reference hire the provider in the first place?
  • Did the provider follow through on its commitments?
  • Are the reference and the provider continuing their relationship? Is the PC program still operating? Why or why not?
  • Were there any surprises?
  • Would the reference hire the provider again? Why or why not?

Scoring Criteria

Now you have a significant body of information that needs to be scored against your criteria. For this step, it may be helpful to consider giving more weight to the characteristics that have been identified as most important by other organizations that have already implemented energy savings programs.

Last month, I did a survey of 16 school districts to identify the key success criteria when selecting a performance contractor. Although the survey was limited to school districts, the results can have meaning and application for many facility managers, especially those who handle multiple facilities.

These school districts in various parts of the country have already been operating an energy conservation program across their facilities for more than 2 years, and some have programs that have been in place for more than 10 years. Each district works with a different PC firm. 

At the beginning of the survey, each district was asked, “If you were giving advice to another school district about selecting an energy consultant, what would you say are the key success criteria?”

The most frequently mentioned response at 43 percent was “provider capabilities/track record with references” (see pie charts). For the large school districts with student populations greater than 20,000, this response was even higher at 80 percent. Also among large school districts, the second-ranked priority at 83% was “support/training/benchmarking.”

In contrast, small school districts were less aligned with respect to their priorities.  Figures 5 and 6 show that the priorities identified are much more evenly distributed with no dominant priorities.  This could mean that small school districts are truly a different market and require different needs.

When selecting a provider for a performance contract, keep in mind that facilities of different sizes may have different priorities on the key success factors. In addition, you should select a provider who has experience in your facility size and type so that the provider can benchmark your facility against others and make adjustments as needed.

Eric Woodroof, Ph.D., is the Chairman of the Board for the Certified Carbon Reduction Manager (CRM) program and a board member since 1999 of the Certified Energy Manager (CEM) Program. He is a strategic advisor, corporate trainer, keynote speaker, and founder of

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