THE TIPPING POINT
Some of the energy savings programs described above include third-party maintenance, usually for specialized equipment, but none include day-to-day maintenance by the energy service company. It's an omission that doesn't optimize the potential benefits of the concept, according to consultant Shirley Hansen.
While many public clients fear losing positions, energy service companies that keep most of the maintenance often guarantee that personnel won't be cut, freeing employees to concentrate on deferred maintenance. When Hansen was head of the U.S. Department of Energy's Schools and Hospitals Conservation Division, one study revealed that the practices of operations and maintenance employees were responsible for up to 80% of the savings — up to $4 out of every $5 saved — on efficiency measures.
“Because the whole scenario rests on guarantees, performance contracting is risk management,” Hansen says. Energy service companies manage risks by mitigating some and setting money aside to cover others.
“When the customer is responsible for maintenance, the vendor can hedge the risk by training employees on energy-efficient practices on the new and existing equipment, instituting control procedures like CMMS (computer managed maintenance services), and holding back funds,” she says. “The greater the risk, the less of the investment goes into equipment and service. This can really mount up.
“Let's say a customer with a $10 million utility bill is considering proposals from two potential vendors, and each predicts a 25% savings with a four-year pay-back. Company A guarantees 75% of the expected savings and Company B guarantees 60%. The customer will lose about $5 million due to a smaller amount invested and a lower level of savings guaranteed on a 10-year contract if it chooses Company B.
“Potential customers can differentiate the two companies by checking predicted savings against actual savings in referenced projects. The more cautious Company B will have savings as much as 140% above prediction — and brag about it. But in actuality this high level of caution leaves money on the table.”
Burns & McDonnell encourages clients to incorporate maintenance contracts for critical equipment, but most use their own staff or contract it separately to other providers during a performance contract period. “Where clients provide their own maintenance services we typically provide a best-practices O&M plan that meets the requirements that affect equipment performance,” Barnes says.
As always, explore your options.Consumption collaborators
Five ways to maximize your department's relationship with an energy-services company.
Like design-build, which they resemble in concept and execution, performance contracts require managers to relinquish some control over elements they've traditionally dictated. Contractors typically develop engineering designs and specifications, and manage the project from design to installation to monitoring. The customer can keep more control, but this adds to the energy service company's risk, which reduces the level of funds invested in equipment and services.