Proper O&M Procedures Pay Off with Long-Lasting Savings for Performance Contracting Projects

July 28, 2004

Energy efficiency gains resulting from improvements financed through performance contracting can be greatly enhanced by following proper operations and maintenance (O&M) procedures. And conversely, poor O&M can quickly compromise the gains accomplished through performance contract projects.

Performance contracting is an important tool for agencies trying to reduce energy use in their buildings. It provides facilities a means of financing infrastructure improvements when funding is limited. These contracts allow facility management to make comprehensive improvements with the assistance of highlyqualified energy efficiency experts from qualified energy service companies (ESCOs) or utilities. In addition to expert assistance in designing and installing energy-efficient technologies, performance contracts provide guarantees of performance throughout the life of the contracts. A key contractual element that affects these guarantees is the proper O&M of the equipment, as well as repair and/or replacement of equipment that fails during the term of the contract. While these are important aspects of the contracts, many facilities are unable to hand off actual performance of O&M to ESCOs. Many facilities have unionized or contracted maintenance situations that make delegation of O&M duties to the ESCOs too costly to be included in the contracts. At the same time, many prefer to assume the risk of premature failure of the equipment to maximize the amount of improvements installed under the performance contract.

It is perfectly legitimate for facilities to take on the responsibility of the O&M and/or take on the responsibility for repair and replacement of installed equipment. In these cases, a strong O&M program is more important than ever to ensure continued performance of the equipment as guaranteed by the ESCO. The facility representatives must carefully consider the responsibility and risk they are accepting and plan how they will deal with it. Performance contracts have routinely produced savings of 10 to 30 percent. Implementation of solid O& programs are also estimated to save 10 to 30 percent of energy and energy-related O&M costs. However, improper O& can compromise persistent energy and energy-related cost savings from energy conservation measures.

FEMP is developing tools to assist facilities in managing performance contracts through the performance period. FEMP's assistance is important for several reasons. For example, performance contracts routinely have contract lengths of 10 to 20 years, and facilities are not used to dealing with long-term contracts. There are going to be many personnel changes at the facility and with the ESCOs during the term of the project. While the ESCO is guaranteeing performance of the project, facility management is responsible for overseeing the project to ensure the ESCO continues to perform. Shrinking budgets and staffs for O&M at facilities have in many cases led to failure of O&M programs. Various audits of facilities throughout the country have found that poor or improper O&M has negated many of the energy efficiency improvements made over the years.

These audits have found makeup air vent controls disconnected, or vents jammed in the full-open position. Lighting controls have been disabled, control points disconnected, or the controls themselves disabled. In some cases the controls are physically disabled, and in others the set points have been overridden at the central computer control station. These actions are usually prompted by complaint calls from building occupants. And improper measures taken may be due to poor understanding of computer controls, or poorly written/proprietary control systems that do not allow changes by the maintenance staff.

One important tool that is part of the Super ESPC contract is the "Risk/Responsibility Matrix" (Microsoft Word 78 KB). This matrix is used during development of the ESPC delivery order to clearly delineate risks related to various aspects of the project and how they are divided between the contractor and the agency. It is important to clearly show the responsibility and expectations of both partners in ESPC projects before the award of the delivery order.

Given the current understanding of the O&M challenges facing facilities with awarded performance contracts, FEMP is working with some agencies that use the Super ESPC contracts to improve existing tools and develop new ones. The Measurement and Verification (M&V) working group continues to refine M&V tools. They have rolled out formats for the post-installation M&V report, as well as an annual M&V report format. Other working groups are developing O&M checklists and a quick reference tool that captures the essence of the project. The reference tool points to sources of detailed information needed by facility staffs during the performance period of the project.

These tools are intended to help facility personnel ensure continued savings through the life of the performance contract. The M&V post installation checklist and annual report formats can be found (under products) at These tools provide regular information to facilities regarding the performance of the project. Changes in performance can be important indicators of changes that have been made to the system that are affecting the savings generated by the project. Standardizing the information provided by the ESCOs in these reports helps to ensure the facility gets the information they need in a format that they can understand. While this is important information, it is generally provided once a year, which can mean that a lot of savings may have been lost since the last report.

The O&M checklists help facilities monitor the equipment regularly to ensure that it is operating as designed. The maintenance part of the plan helps to ensure that the equipment will continue to operate as intended. Streamlined checklists that lay out key elements of O&M, with references to applicable parts of various O&M manuals, are being designed to give facility maintenance supervisors and technicians an easy-to-use tool to ensure routine maintenance is performed as required. This is particularly important for facilities that are understaffed and have significant staff turnover. If less time is needed to determine what is required, more time can be used in the actual maintenance of the equipment. Convenient operations checklists are also envisioned to make it more likely that operations personnel will correctly operate the equipment, rather than disabling system components to solve immediate problems.

The third tool that FEMP is developing is a quick reference guide for key performance period activities for use by facility management personnel. It is also a reference to help new personnel quickly learn about an existing performance contract, what their responsibilities are, and where to find pertinent information. The reference will contain a short synopsis of the project, including current project savings and performance status. The tool references key parts of the contract, the M&V plan and annual reports, and O&M check sheets, so that facility personnel can quickly locate needed information.

For more information, contact Tatiana Strajnic at 202-586-9230.