Schools turn to performance contracting for help

Engineered Systems, March, 2001 by Joanna R. Turpin

There have been numerous reports lately showing that schools are in dire need of structural and mechanical repairs, yet there are often no funds to fix the problems. For many schools, performance contracts may be the solution.

Performance contracts are really nothing new. Indeed, they've been around for upwards of 15 years, and many K-12 schools around the country have already made use of them. Other schools have probably heard about them, but they may not have the manpower to look into the many different providers that are offering performance contracts.

Or worse, they may have hopped on the bandwagon too soon with a financially unstable service provider and been burned in the process. It cannot be stated strongly enough that if a school is going to enter into a performance contract, extensive research must first be done. Schools must make sure that the provider is financially stable, that they have a good track record, and that they have the technical ability to do what they say they'll do. That takes a lot of legwork.

But the benefits are obvious when a school takes the time to research an entity and procure a performance contract: Energy and operational dollars can be taken and used to make much-needed capital improvements in buildings. The key is for the right school and the right provider to find each other and enter into a mutually beneficial agreement.

ONE-STOP SHOPPING

A performance contract in a school works similarly to the way it would work anywhere else; that is, the school district would first evaluate its facilities for potential efficiency improvements. If it seems there are sufficient improvements that could be made, the district would prepare a Request for Qualifications (RFQ). The goal of the district is to pique the interest of at least two performance contract providers (manufacturers, energy service companies [ESCOs], utilities, et al.), who will then perform a cursory examination of the facilities to determine whether or not enough energy and operational savings can be obtained to warrant entering into a performance contract.

If the performance contract entities agree with the district that a performance contract makes sense, a Request for Proposal (RFP) is drawn up, and the selected providers then perform an energy analysis and prepare a proposal for the school(s) in question. Based on the proposal, which addresses what types of changes will be made and how much energy can be saved, the school chooses a provider, and the energy contract commences.

The provider is responsible for all efficiency improvements made to the facility -- that includes selecting, installing, and commissioning the improvements. The provider may also provide maintenance and repairs as part of the contract, although that varies based on the project and the specific needs of the district. And when construction is completed, the provider monitors the school(s) to ensure that energy efficiencies are achieved.

This type of one-stop shopping is very appealing to many schools that lack the manpower to solicit and review bids. In fact, Barbara Morecz, director of education sales for Johnson Controls (Milwaukee) believes that is one of the main benefits of a performance contract.

"Schools are limited in their resources, and that can be money, manpower, or time. Many districts don't have the in-house staff or often the capabilities to get these types of projects implemented. In addition, they don't have enough time. Districts have an advantage of looking at Johnson Controls, Inc., a $16 billion organization, that has extensive project management experience, is held accountable for a successful implementation, guarantees the outcome, and has the financial stability and track record to deliver," says Morecz.

David Rowland, P.E., senior vice president, regional manager, Mid-Atlantic, NORESCO (Philadelphia), says that being a one-stop shop is a substantial benefit that's worth pointing out. "We're responsible for the performance of the system, and we're responsible for making sure it goes in smoothly. In many cases it's a substantial undertaking that the school couldn't do with existing staff and so that's the real expertise the ESGO provides."

That can also be a drawback to some schools that are used to doing everything themselves. Dan Fortier, mechanical engineer, Pittsburgh Public Schools, has been involved in performance contracts for about three years. The hardest thing he had to learn about the process was how to give up control.

"We're used to having more control over our work than you get with performance contracting," says Fortier. "With the traditional plans and specs going out to bid and the low bid contractor wins the contract, everything's pretty much spelled out to the last detail on the drawings and the specs. With performance contracting, you could insist on that, but that would probably dilute some of the reason for going with a performance contractor. We just have not had as much control as we're used to over these construction projects."