Smart Money

When structured effectively, a performance contract is the start of a long-term relationship with a contractor. It enables a school or university to make facilities improvements without capital expenditure and provides guaranteed savings that can be rolled back into the educational program.

Performance contracting has evolved over time. It began in the 1970s as a response to energy-conservation initiatives, when schools, universities and other building owners began to realize they needed to improve facilities to operate more cost effectively. At that time, most facilities managers used a traditional contracting approach--hiring a consultant to perform an energy audit and outline possible energy initiatives, then issuing a request for proposal to implement the project. Unfortunately, there was no accountability for achieving the aims of the initiative over the long term.

Making improvements Now, performance contracting puts accountability into the equation. By the late 1980s, performance contracting had evolved into a process where a contractor would assess the potential savings to be generated by an energy initiative and implement the facilities improvements, funded either from a monthly fee or through guaranteed savings. The contractor provides the capital equipment, maintenance and financing, as well as guarantees savings over a period of time.

Today's performance contracts have become even broader. Rather than limiting the technique to a particular initiative, performance contracts seize the opportunities for long-term savings that can be generated through continued effective administration of a facility, including operations and maintenance, finance, coordination of new projects, purchase of fuel and power, and resolving environmental issues and system design problems.

Selecting a contractor Of course, these changes also have altered the profile of the type of contractor a school or university needs to execute a performance contract. Schools should hire a contractor with the skills to understand how energy, maintenance and operations, system design, etc., affect the facility, not just an energy consultant or mechanical contractor.

Begin the process of selecting a performance contractor by conducting prequalification interviews. Look for companies that can bundle together services such as fuel purchase, maintenance and operations, and system design. Present the facility's problems and ask the company to outline its approach to finding cost-effective solutions. Do not put too many limits on the interview process; allow the creativity of the potential contractor to express itself.

Select a firm with broad experience in educational institutions. Such a firm will have an understanding of the funding issues in the educational market and how they relate to capital-improvement initiatives.

The performance contractor should be able to assess the school's overall operating costs, indicate where the savings can be achieved, then structure the contract around those savings. For example, the contract can be structured around keeping facility costs at less than a certain number of dollars per student or dollars per square foot. Some performance contracts, instead of guaranteeing a particular dollar savings, promise to provide a certain number of computers for educational use.

Energy-conservation improvements are not the only things that can be funded through a performance contract. However, performance contracting still focuses primarily on electromechanical systems. Theoretically, a broad array of services can be handled through performance contracting, and as owners and contractors become more experienced with the approach, they are likely to discover a myriad of new opportunities.

Proceed with caution Who pays for capital improvements generally depends on the savings projected to accrue from the improvement. Many performance contracts specify that the contractor fund capital improvements. The institution will have one monthly bill, which may include maintenance and operations, and a portion related to capital improvements.

If the performance contractor is going to subcontract the work related to the capital improvements, make sure the performance contract is self performing. In a self-performing contract, the performance contractor is responsible, in the end, both for the capital improvement and the performance.

Avoid a contractor who asks the school or university to contract with the capital-improvement subcontractor. Even if the performance contractor helps the school select the subcontractor and monitors the process, if the savings do not materialize, the performance contractor and the subcontractor may blame one another and the institution will be caught in the middle.

Reject, as well, any performance contractor that will not guarantee the savings. The responsibility must be on the contractor to monitor the initiative and prove the savings. In addition, be aware of contracts that specify that savings will not be achieved without proper maintenance and operations. The performance contractor should be involved in that as well.

Do your research While it may seem that structuring the contract is fraught with pitfalls, in fact, performance contracting is becoming accepted practice in the marketplace. Do some research. Talk to colleagues and examine contracts they have successfully used. Consider modeling one of these; you do not always have to reinvent the wheel.

The typical term of a performance contract depends on the school's objectives and the acceptable payback period. Schools and universities usually want a 7- to 10-year payback period.

Clearly, reputable performance contractors are there for the long haul. They want a long-term relationship involving not only the capital improvement, but also the maintenance and operations, as well.

In short, through performance contracting an owner can achieve improved facilities that essentially pay for themselves. To make it work, select an experienced performance contractor, make sure the contract covers both capital improvements and maintenance and operations, agree upon an appropriate measurement of projected savings, and build a long-term relationship with that vendor. Remember, the key to success is accountability.

There are many ways to achieve significant energy savings without spending a lot of money. While expensive projects like lighting upgrades or boiler replacements can pay for themselves in reasonable periods of time, many low-cost measures will frequently result in even greater savings. In addition, you will increase a building system's reliability and increase occupant comfort.

The following measures represent the tip of the iceberg. Every building manager will know other energy-management opportunities that may be unique to his or her buildings. By adding to the list as opportunities are noticed, the building manager can develop a comprehensive document that can guide facilities personnel toward optimum building operation.

-Check calibration and operation of thermostats and verify proper HVAC response. Many buildings are overcooled in the summer and overheated in the winter. -Caulk and weather-strip around doors, windows and other building penetrations. Close unneeded wall and roof openings. -Schedule building cleaning to minimize the time lights are on and spaces are conditioned. Instruct building users and custodians to turn off the lights when leaving a room. Consider posting "turn off lights" signs by light switches. -Verify that swimming-pool covers are used regularly and properly. Check that natatorium humidity-control/ventilation equipment is calibrated and operating properly. -Adjust hot-water temperature to the minimum required. -Check that the scheduling of the HVAC system reflects the building occupancy schedule as closely as possible to avoid unnecessary conditioning of unoccupied spaces. -Check all damper seals, linkages and control systems for proper operation and tight closure. -Maximize the use of free cooling opportunities by adjusting economizer setpoints, checking sensor calibration and verifying proper damper operation. -Set up a schedule for routine maintenance of steam traps and condensate return systems in buildings with steam boilers/distribution systems. Also, provide for and monitor boiler-water treatment to reduce scale deposits and enhance heat exchange. -Maintain a chiller operating log and operate the chiller at the design specifications. The manufacturer can supply this information, as well as a maintenance log for the machine.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.