By Steve Kelman

Blog archive

Share-in-savings for energy-saving contracts -- how headquarters contracting shops can help

Readers of this blog and of my columns — most recently the blog post before this one on the Air Force buying and refurbishing used corporate jets for battlefield surveillance — know that I'm on something of a tear about challenging government contracting professionals to scour their brains and use their ingenuity to do our part to contribute to deficit reduction by finding ways to save money on what the government buys. Readers will also be aware that for years I have advocated greater use in government of share-in-savings contracts, the ultimate form of performance-based contract where the contractor is paid, all or in part, as a proportion of the savings their efforts generate.
Because of technical appropriations law issues involving something called "termination liabilities," agencies have been hesitant to seek out opportunities for these kinds of contracts (although in my view there are ways to deal with these problems — any interested agency should contact me for my thoughts). However, for many years there has been a statutory fix for this appropriations law issue with regard to one kind of share-in-savings contract, called Energy Savings Performance Contracts.

These are long-term contracts where the contractor invests up front in energy savings technology and is paid as a percentage of measurable energy consumption savings over the life of the contract. (If there is some really low-hanging fruit for energy savings that anybody can immediately notice, it makes sense for the government to make the investment itself from appropriated funds — these contracts are appropriate when identifying and implementing a lot of the savings requires ingenuity and specialized expertise.)
The daily contracting update that ASI Government put out Sept. 13 took up a 3-week old memo from OMB and the White House Council on Environmental Quality encouraging use of Energy Savings Performance Contracts. This was a real coincidence, because just last week I had gotten a phone call from a vendor in the Midwest who provides these services to federal agencies. He called to say that at the local agency level, program officials were eager to negotiate such contracts, but contracting professionals in the local office didn't know how.
These are obviously complex contracts, and, since most contracting shops will have little or no experience with them, they also won't know enough about how to conduct a competition for them or how to protect the government's interests. The folks on the front lines need help.
This is a role for agency headquarters contracting policy offices (headed by agency Senior Procurement Executives) and for the General Services Administration. Headquarters policy shops should not be seeing their role only as commenting on or issuing regulations, and reviewing (second-guessing) big contracts from the field. An important role for these central shops should be as a source of information — written and oral — for complex, recurring contracting problems. These shops should take up the cudgel of helping the field with advice about what should be in these contracts and how the agency should compete them.

There is also a role for GSA here, particularly since the Public Buildings Service side is the government's major landlord and because Administrator Martha Johnson has made reduction of energy use a big priority. I have often felt there is not enough "assistance" in GSA assisted services — that GSA ought to be offering help on these kinds of complex contracting issues for agencies. Mary Davie, how about a GWAC or something for energy savings performance contracting services, with help to customers about how to do these things right?

Posted on Sep 14, 2011 at 7:27 PM

Reader Comments

Wed, Sep 28, 2011

This is the "Exact" book-keeping scheme Enron used. It is way too easy to abuse it.

Mon, Sep 19, 2011 Sanchezjb

It would be great to see success stories result from such Share-in-savings (SIS)initiatives. However, such projects need to be approached with a great deal of forethought and planning by both the government and contractors. Share-in-savings (SIS) contracts can be very difficult to successfully implement. For starters, are there any successful ones at the federal level that the government can point to? Steve rightly points out that the government is focused on "how to protect the government's interests." Contractors who participate in such contracts will also want to protect their investments. This means that SIS contracts need to very cleary establish a mutually agreed upon (between the government and the contractor) definition of what constitutes success. Additionally, specific actions that lead to that success will need to be established as well as establishing ownership for the completion of those actions. Completion criteria for those actions must be agreed upon. Action dependencies will also have to be established. A governance framework for executing the program and resolving disputes should be put in place. Planning should address not just a concept of operations but also scenarios and contingencies in the event of government and/or contractor performance shortcomings. Both parties also need to commit to tangible "skin in the game" investments. These are but a handful of actions that need to be addressed regarding SIS contracts. These actions, and others, can then form the basis for the templates and BPAs that Peter Lobin suggests (in his comments) be established. Contractors should collaboratively work with the goverment in developing these.

Wed, Sep 14, 2011 Peter Lobin United States

It does not matter if the benefits of a shared savings contract are clearly beneficial to the technical representative of the agency. COs are scared about a Shared Savings contract because they don't want to be first or lack of familiarity with it. If HQ were to develop templates or even better BPAs, the fear(s) would vanish instantaneously.

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