Federal Energy Management and Planning Programs; Energy Savings Performance Contract Procedures and Methods

SUMMARY: The Department of Energy gives notice of final rules

establishing a five-year pilot program of energy savings performance

contracts designed to accelerate investment in cost effective energy

conservation measures in existing Federal buildings and thereby save

taxpayer dollars. Such contracts typically provide for installation of

energy conservation measures financed with private sector funds which

are repaid out of the resulting energy cost savings over time. This

notice covers the following topics as required by section 801 of the

National Energy Conservation Policy Act (42 U.S.C. 8287): qualified

contractor lists; procedures and methods to select, monitor, and

terminate contracts; and substitute regulations for certain provisions

in the Federal Acquisition Regulation which are inconsistent with

section 801 and which can be varied consistent with their authorizing

legislation.

EFFECTIVE DATE: These rules become effective May 10, 1995.

FOR FURTHER INFORMATION CONTACT: Joan G. Stone, EE-92, Office of

Federal Energy Management Programs, U.S. Department of Energy, 1000

Independence Avenue, SW., Washington, DC 20585, (202) 586-5772

(regarding the regulations) and the FEMP Help Desk (for a copy of the

revised model solicitations) (800) 566-2877.

SUPPLEMENTARY INFORMATION:

I. Introduction

The Department of Energy (Department or DOE) today publishes a

notice of final rulemaking which will inaugurate a Congressionally

mandated experiment in procurement reform. This experiment involves a

pilot program to test for five years the concept of accelerating

installation of energy conservation measures in existing Federally

owned buildings through energy saving performance contracts. This type

of contracting calls for Federal agencies to contract for energy

conservation services with performance guarantees and pay for them in

the future from the resulting cost savings. If successful, this program

will boost the level of energy efficiency investment significantly

beyond what can be purchased with appropriated funds. It will also make

a contribution to achieving ambitious national energy efficiency goals

and to reducing greenhouse gas emissions.

Today DOE is also releasing revised versions of the model

solicitations which were made available for public comment. These

solicitations provide guidance to implementing Federal agencies on

conducting procurement actions consistent with the rules in this

notice. DOE will use these model solicitations in training workshops

for agency procurement professionals.

On March 10, 1994, the President issued Executive Order 12902,

Energy Efficiency and Water Conservation at Federal Facilities (59 FR

11463). Section 401 of the Executive Order requires agencies to utilize

energy savings performance contracts to meet the goals and requirements

of the Act. With the issuance of today's regulations and the model

solicitations, Federal agencies have the regulatory flexibility to

comply with the President's management directions. What is necessary

now is action by senior agency officials, an appropriate agency

priority on employing energy savings performance contracts, development

and maintenance of a trained cadre of dedicated procurement personnel,

and accountability for results.

Background

On April 11, 1994, (59 FR 17204) DOE published a notice of proposed

rulemaking under section 155 of the Energy Policy Act of 1992 (Pub. L.

102-486). Section 155 revised the legislatively mandated policies with

regard to energy saving performance contracts originally set forth in

sections 801-804 of National Energy Conservation Policy Act (Act).

Section 801 specifically authorizes Federal agencies to enter into such

a contract for a term not to exceed 25 years. It also provides that

such a contract contain provisions requiring the contractor to ``incur

costs of implementing energy savings measures, including at least the

cost (if any) incurred in making energy audits, acquiring and

installing equipment, and training personnel, in exchange for a share

of any energy savings directly resulting from implementation of such

measures during the term of the contract'' (42 U.S.C. 8287(a)(1)). In

addition, the Act specifically authorizes payment of amounts required

by an energy savings performance contract ``only from funds

appropriated or otherwise made available to the agency . . . for the

payment of energy expenses (and related operation and maintenance

expenses)'' (42 U.S.C. 8287a). Periodic reporting on progress by

Federal agencies in modifying contract practices and in achieving

energy savings under contracts is mandated by section 803 of the Act

(42 U.S.C. 8287b). Definitions pertinent to sections 801-803 are set

forth in section 804 of the Act (42 U.S.C. 8287c).

Section 155 of the Energy Policy Act inserted in section 801 a

requirement for DOE to issue appropriate rules containing: (1) Methods

and procedures for selecting, monitoring, and terminating energy

savings performance contracts; and (2) ``substitute regulations'' for

provisions of the Federal Acquisition Regulation (FAR) which are

inconsistent with the intent of section 801 as amended and which may be

revised consistent with generally applicable procurement statutes.

Energy savings performance contracts are designed to reduce the cost of

energy in Federal buildings without capital investment by the building

owner. Typically, the terms of such a contract provide for contractor

purchase, installation, and maintenance of energy conservation measures

with a guarantee of annual energy cost savings in consideration for a

share of such savings. ``Under these contracts, the contractor is

expected to bear the risk of performance, make a significant initial

capital investment, guarantee significant energy savings to the

government agency, and from these savings, the agency, in effect, makes

payment to the contractor.'' H.R. Conf. Rep. No. 102-1018, 102d Cong.,

2d Sess., 385, reprinted in 1992, U.S. Code Congressional and

Administrative News 2476.

The Act requires that DOE obtain the concurrence of the Federal

Acquisition Regulatory Council established under section 25(a) of the

Office of Federal Procurement Policy Act (41 U.S.C. 421) in the

issuance of the final rule. The Federal Acquisition Regulatory Council

has reviewed this notice and has no objection to the issuance of the

final rule.

The model solicitations, referred to earlier in this Supplementary

Information, provide uniform formats and standardized contract

provisions recommended for Federal agency use in energy savings

performance contracts. The model or generic solicitations include some

provisions that have been [[Page 18327]] determined necessary to

accommodate the unique nature of energy conservation services which

often require third-party financing.

II. Discussion of Comments and Other Changes

DOE held a public hearing on June 1, 1994, and the closing date for

receipt of written comments was June 10, 1994. Nineteen interested

persons filed written comments of which 13 presented oral comments at

the public hearing. DOE appreciated all comments and suggestions

submitted in response to the proposed rule. DOE was especially

appreciative of certain of those written comments that addressed the

proposed guidance in the draft model solicitations in addition to the

proposed regulations. DOE fully considered all of the suggestions and

arguments made in the comments in revising the proposed regulations and

the draft model solicitations. In this Supplementary Information

section, DOE explains significant changes from the proposed

regulations. Included in the explanation are responses to the major

policy issues distilled from comments directed at the proposed

regulations, as well as from comments directed at the draft model

solicitations that had implications for the proposed regulations.

DOE has chosen not to respond to comments that request actions

beyond its legal authority to issue regulations. For example, there is

no need to respond to policy arguments in comments criticizing DOE's

legal conclusions rejecting suggested substitute provisions for the

Federal Acquisition Regulation. DOE hereby reaffirms its previously

expressed views in this regard.

DOE has sent to each of the commenters a copy of the revised model

solicitations and will be scheduling a public meeting at which time

there can be a dialog on issues that relate solely to those

solicitations. Interested persons who did not comment on the proposed

regulations may obtain a copy of the revised model solicitations by

calling the FEMP Help Desk at 1-800-566-2877. Any such person may

attend the public meeting which will be noticed in the Federal

Register.

A. Section 436.30 Purpose and Scope

As proposed, 10 CFR Sec. 436.30(c) would encourage competition in

utility incentive programs under section 546(c) of the Act. 42 U.S.C.

8256(c). A commenter recommended that language be added to proposed

Sec. 436.30(b) which would prohibit agencies from participating in

utility incentive programs when the services could be provided by

energy service contractors through energy savings performance

contracts. Another commenter seeking to maximize competition suggested

that the language in Sec. 436.30(c) be revised to ``require'' instead

of encourage utilities to select their contractors in a competitive

manner. DOE did not accept either of these suggestions because it does

not have the authority to regulate agency activities or contractual

agreements with regard to utility incentive programs as authorized

under section 546 of the Act.

DOE has added a paragraph (d) containing language to ensure that

the rules published today are broadly construed when the regulatory

language is not restrictive. Permissive language in the regulations

(``may'' rather than ``shall'') ordinarily should not be read to limit

agency discretion. For example, the express authority to accept

unsolicited proposals if certain conditions are satisfied does not

preclude agencies from rejecting such a proposal because it prefers

competitive solicitations or concludes that the proposal is too

narrowly focused on one or two energy conservation measures.

B. Section 436.31 Definitions

Energy Audit

Regarding the definition of ``energy audit,'' commenters generally

agreed with the Department's position that specific energy audit

requirements should not be prescribed in mandatory regulations. Apart

from regulatory provisions requiring there to be energy audits at

certain times, the specifics with regard to energy audits appear in the

revised model solicitations.

Numerous comments on the model solicitations were received relating

to the applicability, rigor, and timing of energy audits which may be

conducted by a Federal agency or an energy service company, before or

during a contract. Detailed responses to these comments appear later in

this Supplementary Information section in the discussion of comments

with regard to Sec. 436.33. However, at this point, DOE notes that, in

order to promote clarity, the definition of ``energy audit'' has been

limited to ``annual energy audits'' that take place during the course

of a contract to verify savings and to determine whether to adjust the

energy baseline for changes in conditions beyond the contractor's

control. This limitation is consistent with the statutory text which

uses the term ``energy audit'' only in connection with post award,

annual energy audits. DOE has also added definitions for two new terms:

``preliminary energy survey'' and ``detailed energy survey.'' These two

terms refer to audit-type procedures which may precede contractor

selection and contract award, respectively.

Energy Conservation Measures

One commenter recommended that the definition of ``energy

conservation measures'' include language which addresses ``other

environmental improvements'' to encompass technological breakthroughs.

DOE did not incorporate this comment into the rule because DOE has no

authority under 42 U.S.C. 8287c to include the additional language.

Energy Cost Savings and Energy Savings

One commenter suggested that the statutory definition of ``energy

savings'' in section 804 of the Act be included in the rule instead of

the proposed ``Energy Cost Savings'' definition. Further, the commenter

suggested that the proposed definition of the term ``Energy Savings''

be changed to ``Energy Unit Savings.''

DOE has accepted the latter suggestion because it implies in plain

English that the measure of savings is in physical units. However, DOE

has decided to retain ``energy cost savings'' as the defined term for

savings measured in dollars. In general, DOE prefers to use defined

terms which have definitions close to normal usage.

Some of the comments indicated uncertainty about the extent to

which energy-related operation and maintenance cost savings are

included in the definition of ``energy cost savings.'' DOE recognizes

that the law allows a contractor to be paid from savings in related

operation and maintenance costs, if the contractor assumes

responsibility for operations or maintenance of equipment it has

retrofitted or replaced and which is currently covered in an operation

and maintenance service contract.

One commenter recommended that DOE consider how ``soft savings''

should be defined and considered. Examples of soft savings are

increased worker productivity and extended equipment life. DOE has

decided not to address soft savings in the final rule because it is too

subjective and difficult to measure accurately.

Energy Savings Performance Contracts

A commenter asked DOE to clarify whether the procedures in the rule

for energy savings performance contracts apply to water conservation

projects. DOE did not include water conservation in the definition for

``energy savings performance contracts'' in the rule because water

conservation was not [[Page 18328]] included in the definition in 42

U.S.C. 8287c.

C. Section 436.32 Qualified Contractor List

Paragraph (a) of 436.32 provides for annual notices in the Commerce

Business Daily inviting submission of new statements of qualification

and requiring submission by listed firms of updates to their statements

as appropriate. This provision differs from the proposed rule only to

the extent that the wording has been altered to make clear that

submission of updated information is required.

One of the commenters on proposed Sec. 436.32(a) argued that an

annual update of the qualified list may unnecessarily restrict

competition. Furthermore, the commenter argued that the usefulness of

any such list may be limited by the age of the information provided by

contractors. This commenter recommended that the list should be open

continuously to add qualified contractors. Although an annual notice

will be published, DOE will allow potential contractors that are not on

a qualified list to submit a statement of qualifications at any time.

DOE agrees that this will assist in increasing competition among firms.

The proposed rule provided for updating statements of

qualifications, but did not make explicit that a firm could be delisted

for failure to respond or because new information warranted

disqualification. Paragraph (c) of Sec. 436.32 remedies that omission.

The preamble to the proposed rule set forth two questionnaires

which would be used to establish the qualified list of firms as

provided under paragraph (a) of Sec. 436.32. In response to DOE's

request for public comments on the adequacy of the questionnaires, a

number of firms submitted comments. The most significant of these are

addressed below. These questionnaires have been revised based on public

comments as discussed below. A copy of them is set forth after a

discussion of public comments.

DOE agrees with commenters that it would be difficult for firms to

identify all associates and subcontractors without the knowledge of

specific projects and its location. The questionnaire was revised by

deleting the requirement for the identification of subcontractors.

A commenter recommended that the table under ``EXPERIENCE,''

seeking a five year summary of contract values for energy-related

services, be clarified. It was noted that the total project cost had

little bearing on technical ability or project management expertise.

Based on this comment, the table was deleted, and a question was added

to ``Financial Status'' requesting the largest capital investment for

an energy savings performance contract for which the firm acquired

financing.

Some of the commenters criticized the request for all legal or

administrative proceedings pending or concluded adversely against firms

within the last five years relating to procurement or performance of

construction contracts. The commenter argued that: (1) Responding to

the request would be too burdensome; (2) adverse judgments may not have

an impact on a firm's financial status; and (3) the information would

be sought and reviewed by a contracting officer in any event prior to

award. DOE has accepted these comments and has deleted the request.

A commenter was concerned about the disclosure of proprietary

information provided on their statements of qualifications. In the

Department's view, information in a firm's statement of qualifications

will be subject to the same restrictions on disclosure of proprietary

and business sensitive information as other proposals and documents

submitted to the Federal government by private firms. The Department

does not believe any additional restrictions are necessary or

advisable.

One of the comments suggested that the questionnaire should include

questions about potential performance guarantors, and argued that the

best interests of the government would be served if the qualified list

did not include a firm that would rely on a legally separate guarantor

in which the firm has an indirect financial interest. Contrary to this

comment, DOE has concluded that the questionnaire should not include

questions about potential performance guarantors because a firm's

decision to seek insurance, regardless of source, is not relevant to

determining whether a firm has the minimum qualifications to provide

energy savings performance services.

Comments received on the experience criteria were divided. Some

comments argued that new firms may have difficulty meeting the two year

experience requirements, even if they have experienced personnel, and

that reputable firms would have difficulty qualifying if they have no

performance contracting experience. Another commenter stated that two

successful contracts with two clients should be sufficient for

qualification. To broaden the list of qualified firms and increase

competition, paragraph (b)(1) of Sec. 436.32 has been revised to allow

contractors to qualify if they provide two contracts for installation

of energy conservation measures, regardless of whether they are energy

savings performance contracts, and if they otherwise have appropriate

project experience showing success in using energy conservation

technologies.

In response to comments that the draft experience criteria should

remain unchanged because firms without a proven track record may not

generate energy savings, DOE observes that the qualified list is an

initial screening, and agencies will independently review a firm's

qualifications through their source selection process and determine

whether or not a firm has the ability to generate savings.

A question was asked by one commenter as to the effect a decision

by DOE with respect to inclusion on the qualified contractors list

would have on a contracting officer's obligation to refer

nonresponsibility determinations to the Small Business Administration

under FAR 19.602. Section 801(b)(2) of the Act authorizes the

Department to establish a list of qualified contractors and requires

agencies to use this list, or one developed in the same manner by the

agency itself. Furthermore, agencies are authorized by the Act to

select firms from the list to conduct discussions concerning a

particular project. While this rule establishes certain criteria for

inclusion of a firm on the list, the contracting officer is still

required to make a responsibility determination on a procurement-

specific basis. A decision that a particular small business is not

``qualified'' and, therefore, not eligible to be included on the

qualified contractors list is not a determination of non-responsibility

and has no effect on a contracting officer's obligation to make

responsibility determinations.

Under paragraph (b)(2) of proposed Sec. 436.32, a firm would have

to be rated fair or better by its project clients to meet the minimum

criteria. Commenters argued that the minimum criteria be raised to a

rating above ``fair.'' DOE decided not to accept this comment. Instead

the client questionnaire was revised to add ``recommend contractor'' to

the rating of ``fair'' to make it clear that even though there was room

for improved quality and performance, the client would still give the

firm a positive recommendation because the firm met the project

objective. With this modification of the questionnaire, DOE believes

that a client rating of fair or better is sufficient to consider a firm

for the qualified list. During the actual source selection process,

agencies will independently make the determination whether a firm meets

the minimum requirements to accomplish a specific project.

[[Page 18329]]

Commenters recommended that paragraph (b)(4) of proposed

Sec. 436.32 be changed by adding a statement related to the financial

strength of the firm to provide adequate bonding. This was not included

in the qualification process because agencies will address a firm's

bonding capabilities prior to the award of a specific contract.

A commenter recommended that paragraph (c) of proposed Sec. 436.32

should be revised to allow any Federal agency to enter into sole source

contracts with firms competitively selected by local utilities. This

recommendation was not incorporated in the final rule because DOE has

no authority under 42 U.S.C. Sec. 8287 to implement it.

One commenter recommended that firms not selected for inclusion on

the qualified contractors list be given an opportunity to comment on

adverse information short of filing an appeal to the General Services

Administration Board of Contract Appeals. Section 436.32(d) of the rule

provides firms found not to be qualified the opportunity for a

debriefing from a DOE official. In the Department's view, this should

provide an efficient informal method for advising a disappointed firm

of the basis for the Department's decision. Furthermore, since the list

will be updated on a continual basis rather than annually, firms will

be able to provide corrected or supplemented statements of

qualifications for consideration by the Department at any time.

Following are questionnaires the Department plans to use for

establishing the qualified list:

1. General Information

(a) Name and address of firm:

(b) Telephone No.:

Fax No.:

(c) Indicate type of firm:

______ Partnership

______ Corporation

______ Sole proprietor

______ Branch Office of

____________

______ Joint Venture (List venture partners)

----------------------------------------------------------------------

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______Other (Explain) ____________

(d) This submittal applies to:

[ ] Parent Company

[ ] Subsidiary

[ ] Division

[ ] Branch Office

[ ] Other

List the names of any of the above marked entities which are to be

considered in the prequalification process, and describe their

functions, responsibilities, and interrelationships.

(e) Names and titles of two people authorized to represent the firm

(f) Federal Employer Identification Number

(g) Year firm was established

(h) Name and address of parent company (if applicable)

(i) Indicate previous names of firm: ____________

(j) Has your firm been competitively selected by a Utility Company

under a Demand-Side Management Bidding program to provide conservation

services for commercial and industrial customers? Yes ______ No ______

If yes, please designate the utility and provide pertinent information.

(k) Indicate the largest dollar value of investment your firm would

consider for a Federal Government energy savings performance contract

(ESPC)

(l) Indicate the regions of the country your firm would consider

providing Federal ESPC services

[ ] Region 1 (CT, ME, NH, VT, MA, RI)

[ ] Region 2 (NY, NJ)

[ ] Region 3 (MD, DE, VA, WV, DC, PA)

[ ] Region 4 (FL, GA, KY, MS, NC, SC, TN, AL)

[ ] Region 5 (IL, IN, MI, MN, OH, WI)

[ ] Region 6 (AR, LA, NM, OK, TX)

[ ] Region 7 (IA, KS, MO, NE)

[ ] Region 8 (CO, MT, ND, SD, UT, WY)

[ ] Region 9 (CA, AZ, NV, HI)

[ ] Region 10 (WA, OR, AK, ID)

[ ] All Regions

[ ] Territories

[ ] Overseas Facilities

[ ] Exceptions (specify) ____________

2. Experience

(a) List and briefly describe two projects completed by your firm

that have been operating and saving energy or reducing utility costs

and that best illustrate your range of experience relative to energy

savings performance contracting or energy management expertise (e.g.,

type of technologies implemented). If your firm does not possess ESPC

experience with the technologies for which you want to be qualified,

provide the experience of your firm in implementing other technologies.

One project should represent the largest project completed, and the

other should represent a recently completed project. For each project,

provide information on the following items:

1) Project title and location.

2) Client to contact regarding the project, his or her position,

address, and telephone number.

3) Whether the project was for public or private sector.

4) Briefly describe the facility including function, number of

buildings, and size in square feet.

5) Total contract amount.

6) Type of financing arranged by your firm.

7) Type and term of contract.

8) Starting and ending dates.

9) Whether the project was completed on schedule. If not, explain.

10) Projected annual energy savings and/or demand reduction.

11) Performance guarantees, if performance-based energy service

contract.

12) Actual annual energy savings and/or demand reduction achieved

for each project.

13) Notes, explanations, or any other information relating to the

project. (Optional)

(b) Indicate the number of years in business as an Energy

Management Contractor: ________ years. Indicate all other names for

your firm and the length of time your firm had that name.

3. Technical Capability

List the technologies (e.g., lighting; HVAC systems) which your

firm may propose to apply to a building or facility to implement energy

conservation measures under an energy savings performance contract.

4. Available Staff

(a) Indicate the experience in energy management and energy

conservation services of the personnel in your firm that you are

intending to utilize on projects.

(b) List all professional and skilled trades which your firm

customarily performs with your own employees.

5. Financial Status

(a) For each year in the last five years, identify the largest

capital investment for an ESPC in which your firm acquired financing.

(b) State whether your firm (or predecessors, if any) or any

principal of the firm has been insolvent or declared to be in

bankruptcy within the past 5 years.

(c) Indicate whether your firm or any principal of the firm has

been debarred by the Federal Government and provide explanation.

The following is the revised questionnaire that the firm will send

to two of its clients:

1. Was the project completed on schedule? [[Page 18330]]

2. Did contract involve energy savings performance guarantees? If

so, describe performance guarantees (e.g., annual energy or cost

savings).

3. Did the installed project achieve energy savings and/or demand

reduction projected or guaranteed by contractor?

4. Was the method(s) used by the contractor to determine annual

energy savings and/or demand reduction acceptable for the type of

energy conservation measures installed?

5. Did the contractor provide satisfactory operations, maintenance,

and repair services, if any?

6. Were rebates from the utility in your area available to you? If

yes, did the contractor arrange satisfactory utility supplier rebates

or other financial incentives?

7. Did the contractor provide or arrange satisfactory project

financing?

8. What was your total compensation under the contract?

----------------------------------------------------------------------

9. Provide a rating, using the categories identified below, of your

overall satisfaction with the services provided by the contractor.

Please briefly explain your reasons for giving a rating of ``Fair'' or

``Poor,'' as applicable.

[ ] Excellent--Exceeded expectations, highly recommend contractor.

[ ] Good--Met all requirements, recommend contractor.

[ ] Fair--Achieved project objective, room for improved quality

and performance, recommend contractor.

[ ] Poor--Significant shortfall in meeting contractual

requirements, would not recommend.

If an accreditation process by a professional association

effectively covers some or all of the information requested through

this survey, evidence of accreditation could be submitted in lieu of

the relevant portion(s) of this questionnaire.

D. Section 436.33 Procedures and Methods for Contractor Selection

The proposed contractor selection methods and procedures in the

proposed rule and in the model solicitations attracted substantial

comment. Several commenters provided detailed critiques of the method

for competitive selection of contractors. In their view, the

Department's proposed method of contract award would be more expensive

for prospective contractors and expose them to more risk than the usual

method under which such contracts are awarded in the private sector.

Under the draft model solicitations, all potential contractors would

conduct ``investment-grade'' audits before submitting a proposal. This

is an expensive undertaking which, the commenters argued, would

discourage firms from competing and from offering a comprehensive

package of energy conservation measures.

The foregoing comments led the Department to rethink the method for

competitive selection of contractors. Both the proposed regulations and

the draft model solicitations have been revised to provide Federal

agencies the option to use a two stage proposal process instead of the

more conventional selection process. In the first stage, the Federal

agency would solicit initial proposals. In the solicitation, the

Federal agency could release whatever data it had about a building,

indicate what energy conservation measures should be included in a

proposal, and allow potential proposers the opportunity to conduct a

``preliminary energy survey.'' Upon receipt of proposals, the Federal

agency would preliminarily select a proposer and announce an intent to

make an award. However, prior to award, the Federal agency would have

the option to require a selectee to conduct a ``detailed energy

survey'' to confirm or modify its proposal, subject to the condition

that the confirmed or modified proposal would include a performance

guarantee that does not reduce the energy cost savings estimated in the

initial proposal more than a fixed percentage set forth in the

solicitation. If this condition is not met, the Federal agency may

select another firm from among those submitting initial proposals. On

the other hand, as the model solicitation provides, if the detailed

energy survey revealed previously unsuspected potential savings, the

contract award could include the additional energy conservation

measures.

DOE decided to describe pre-award energy auditing procedures as

energy surveys because section 801 of the Act only refers to ``annual

energy audits.'' The difference between a ``preliminary energy survey''

and a ``detailed energy survey'' is the degree of rigor in the survey.

The former would be in the nature of what some of the comments

described as a ``scoping audit,'' and the latter could resemble what

some of the comments described as ``investment grade audits.'' There

would be no obligation on a Federal agency to require a ``preliminary

energy survey,'' and if existing data were sufficient, then there would

be no functional purpose to such survey. The degree of rigor in a

``detailed energy survey'' would be a function of how much information

a proposer who has been selected for award needs to confirm or modify a

proposed performance guarantee. The Department is of the view that

selection for award should be enough of an inducement for a proposer to

undertake the risk of conducting a ``detailed energy survey'' that

might not lead to an award. The Department believes that this change in

the method of selecting a contractor will reduce cost and risk for

potential contractors and, thereby, increase competition in energy

savings performance contracting for the Federal Government.

One commenter objected to the provision in proposed

Sec. 436.33(a)(1) that agencies ``request the submission of `intent to

propose' statements from all firms on the list who may be interested in

proposing'' and that selection of the contractor be from those firms

submitting ``intent to propose'' statements. The commenter considered

this provision inconsistent with the statutorily-based requirement in

48 CFR subpart 5.2 that proposed contract actions be synopsized in the

Commerce Business Daily. The Department agrees with this comment and

has revised Sec. 436.33(a) of the rule to provide for issuance of a CBD

notice to inform interested firms of a planned energy savings

performance contract. DOE has decided that the proposed rule

requirement for submission of an ``intent to propose'' statement for

firms on the qualified list is unnecessary in light of the decision to

use a CBD notice to inform firms of a performance contract action.

Section 436.33(a)(4) of the proposed rule stated that a contractor

may be competitively selected based on proposals for a representative

sample of buildings at a large facility. The agency may then request

further proposals from the contractor for all or some of the remaining

buildings at the site. One commenter suggested the addition of language

to this section clarifying that the agency is not obligated to award a

contract or contracts to the selected contractor based on such further

proposals. The agency is free to conduct additional competitions

covering the other buildings. The Department agrees that agencies

should be free to conduct such a competition, but does not agree that

this clarification is necessary because the regulatory provision is

worded permissively. It states what an agency ``may'' do and not what

it must do.

Some commenters expressed concern about the protection of

proprietary and confidential information that may be contained in

unsolicited proposals. [[Page 18331]]

Section 801(b)(2)(C)(iii) of the Act requires Federal agencies to

publish a notice in the Commerce Business Daily regarding the receipt

of an unsolicited proposal and inviting other qualified firms to submit

competing proposals. In the Department's view, the content of such

notices, as well as unsolicited proposals themselves, will be subject

to the same restrictions on disclosure of proprietary and business

sensitive information as other proposals and documents submitted to the

Federal government by private firms. The Department does not believe

any additional restrictions are necessary or advisable.

One commenter recommended that the proposed rule be revised to

permit the submission of unsolicited proposals from any firm, not just

those on the qualified contractors list. The commenter contended that

this provision in the proposed rule is an unnecessary limitation which

is inconsistent with section 801 of the Act. The Department does not

agree with this comment. Section 801(b) of the Act permits receipt of

unsolicited proposals from those companies that are ``qualified.'' The

word ``qualified'' is used in connection to the statutory provisions

governing the qualified contractor's list. As used in context,

``qualified'' appears to apply only to companies on the qualified

contractors list. Firms will be able, under the final rule, to submit

statements of qualifications at any time and may be added to the list

if found to be qualified. Thus the limitation in section 801 of the Act

on unsolicited proposals should not act as an impediment to firms

wishing to submit such a proposal.

One commenter suggested the deletion from Sec. 436.33(b) of the

reference to the statutory provisions (10 U.S.C. 2304(c)(5) and 41

U.S.C. 253(c)(5)) which permit other than full and open competition

when ``authorized or required by law.'' The commenter argued that the

procedures and methods established pursuant to section 801(b)(2) of the

Act constitute ``competitive'' procedures for the selection of energy

savings performance contractors. In considering this comment, the

Department examined the applicability of the Competition in Contracting

Act provisions to the ``procedures and methods'' which the Energy

Policy Act requires the Secretary of Energy to establish for the

selection, monitoring and termination of contracts with energy savings

performance contractors. The Department has concluded that, under 41

U.S.C. 253(a)(1), the procedures and methods required by the Act are

``procurement procedures otherwise expressly authorized by statute,''

and, as a consequence, are exempt from the Competition in Contracting

Act's requirement for full and open competition. Accordingly, the

reference to 10 U.S.C. 2304(c)(5) and 41 U.S.C. 253(c)(5) has been

deleted in the final rule.

The Department has added language to Sec. 436.33(b) to clarify

that, with respect to the receipt of unsolicited proposals for energy

savings performance contracts, the provisions contained in Sec. 436.33

apply instead of the following Federal Acquisition Regulation

provisions which relate to the treatment of unsolicited proposals: 48

CFR 15.503(a) and (c); 48 CFR 15.506-2(a)(1); 48 CFR 15.507(a), (b)(2),

(b)(3), (b)(4) and (b)(5). These provisions have been made inapplicable

because they relate to the requirement in the Federal Acquisition

Regulation that unsolicited proposals must be unique and innovative.

This requirement does not apply to the selection and award of energy

savings performance contracts.

One commenter objected to the prohibition in proposed

Sec. 436.33(b)(2) against an award of an energy savings performance

contract based on an unsolicited proposal ``if there are other energy

conservation measures which reasonably could be implemented in the

existing Federally owned building or facility.'' This proposed

prohibition, in the commenter's view, is overly broad and vague and

could make the award of energy savings performance contracts on the

basis of unsolicited proposals difficult if not impossible. The

Department agrees that the proposed limitation is unnecessarily

restrictive and is not required by the Act. Thus the Department has

deleted it.

The proposed rule did not purport to restrict agency awards based

on unsolicited proposals where no response is received to a Commerce

Business Daily notice. However, there was concern expressed in the

comments about acceptance of such an unsolicited proposal if it focused

exclusively on a small number of energy conservation measures and

ignored other significant opportunities to increase energy efficiency.

Although refusal to accept an unsolicited proposal could be predicated

on an excessively narrow focus, DOE is not prepared to require that

agencies reject all unsolicited proposals with only one or two energy

conservation measures. The facts and circumstances may warrant agency

acceptance of such a proposal. Accordingly, DOE has restructured

paragraph (b) of Sec. 436.33 into three paragraphs to make the policies

on unsolicited proposals easier to read, and paragraph (b)(2) makes

explicit that an agency may reject an unsolicited proposal because it

is too narrow in scope.

One of the commenters expressed an interest in clarification of

paragraph (c) of proposed Sec. 436.33 which purported to recognize the

authority of the Department of Defense under other law, 10 U.S.C. 2865,

to negotiate ``energy savings performance contracts'' with contractors

selected competitively by utilities. Another commenter argued for

deletion of paragraph (c) because it could be a source of potential

confusion. DOE has opted to delete the paragraph because construction

and application of 10 U.S.C. 2865 is the responsibility of the

Department of Defense.

Almost all commenters agreed with the Department's preliminary

determination that the requirement for submission of certified cost or

pricing data should be waived. These commenters provided additional

support for the conclusion that this requirement is inconsistent with

the intent of section 801 of the Act. They pointed out that, under

energy savings performance contracts: (1) The government makes no up-

front payments to the contractor; (2) the risk of performance is

entirely with the contractor; and (3) the government only pays the

contractor out of verified savings that result from the services

performed by the contractor. They emphasized the expense and

administrative burden that submission of certified cost or pricing data

and compliance with cost accounting standards represent to energy

service companies. A number of commenters noted that, for smaller

companies, compliance with these requirements might pose a significant

impediment to competing for government contracts.

Two commenters questioned DOE's authority to waive the requirement

for submission of certified cost or pricing data for other Federal

agencies. They also pointed out that the Truth in Negotiations Act,

which requires the certification, was designed to assist the government

in negotiating fair and reasonable prices and that energy savings

performance contracts must be awarded at fair and reasonable prices.

The Department agrees that in most cases the waiver authority

provided by law appropriately resides with the head of the procuring

activity awarding the contract (Sec. 304A(b)(1)(B) of the Federal

Property and Administrative Services Act of 1949). In the case of

energy savings performance contracts, however, the Energy Policy Act

expressly directs the Secretary of Energy to establish

[[Page 18332]] methods and procedures for selecting, monitoring and

terminating such contracts. Other agencies are required to follow these

procedures if they wish to enter into an energy savings performance

contract. Consequently, the Department has concluded that it has the

necessary authority to find that energy savings performance contracts

as a class are ``an exceptional case'' and to direct the heads of

procuring activities to waive the requirement for the submission of

certified cost or pricing data for such contracts.

It should be noted, however, that waiver of the requirement for

certified cost or pricing data is not intended to preclude contracting

officers from requesting information considered necessary to determine

whether a contractor's prices are fair and reasonable. Language has

been added to Sec. 436.33(c) to provide that the waiver does not

preclude agencies from requesting the submission of pricing and related

financial information as part of contract proposals.

One commenter suggested that the rule itself, rather than merely

the preamble, contain a provision stating that energy savings

performance contracts are firm fixed-price contracts. The Department

agrees with this comment and has added appropriate language which

appears in Sec. 436.33(c) of the final rule.

E. Section 436.34 Multi-year Contracts

In editing the proposed rules, DOE decided to reorganize some of

the provisions by redesignating proposed Sec. 436.35(e) as Sec. 436.34.

Paragraph (a)(2) has been reworded to make it clearer that the funding

condition prerequisite for a multiyear contract only requires that

appropriations for the costs of the first fiscal year (not the total

contract term) must be available and adequate. DOE has also added a new

paragraph (b) to Sec. 436.34 designed to prevent misunderstanding of

paragraph (a)(2). The new paragraph reinforces the plain meaning of

paragraph (a)(2) because some agency officials, on the basis of an

inappropriate excess of caution, may be inclined to construe paragraph

(a)(2) or other provisions of the Act or the regulations to require

that agencies have adequate and available appropriated funds to pay for

contract costs of the entire multiyear term of the contract. Such a

requirement would amount to a crippling interpretation of the Act and

these regulations, and would be inconsistent with the literal meaning

of relevant statutory and regulatory provisions and with the underlying

Congressional intent.

DOE has redesignated proposed paragraph (b) as paragraph (a)(4) and

has added language to clarify that the establishment of a cancellation

ceiling is required in the case of a multiyear energy savings

performance contract under this part.

F. Section 436.35 Standard Terms and Conditions

Proposed Sec. 436.34 has been redesignated as Sec. 436.35(a). It is

not an exclusive list of contractual terms and conditions. The items

covered involve subjects not specifically addressed by the Act (e.g.,

financing agreements and disposition of title) or statutory

requirements that need some interpretation (e.g., provision for conduct

of the annual energy audits). A phrase has been added to paragraph

(a)(1) to make clear that a clause pertinent to the risk of default on

financing would be unnecessary if there is no third party financing.

Language has also been added to paragraph (a)(1) to require contracting

officers to consider any expected change in the performance of

equipment which the contractor is proposing to modify or replace.

Paragraph (c) of proposed Sec. 436.34, which has been redesignated

as paragraph (a)(3) of Sec. 436.35, indicated that a contract should

contain a clause on ``final'' disposition of title to systems and

equipment. DOE deleted the word ``final'' to avoid any ambiguity with

regard to whether an agency may negotiate a clause delaying the

disposition decision until some future point in time during the

contract term.

Comments were received concerning the need for a lender to acquire

a security interest in installed energy conservation measures. DOE

added language in a new paragraph (b) to clarify that energy savings

performance contracts may permit a financing source to acquire a

security interest in the installed systems and equipment. DOE also

shifted proposed Sec. 436.34(a) to Sec. 436.35(b) so that the

regulatory policy on third party financing is located in a single

paragraph and stated permissively.

G. Section 436.36 Conditions of Payment

Section 436.36 was proposed as Sec. 435.35. The section title has

been changed from ``Funding'' to ``Conditions of Payment'' in order to

make it easier to identify the subject matter covered by the text.

H. Section 436.37 Annual Energy Audits

Section 436.37 was proposed as Sec. 436.36. In order to identify

the subject matter more clearly, the section title was changed from

``Procedures and methods to monitor contracts'' to ``Annual energy

audits.''

As discussed above, the term ``energy audit'' used in the proposed

rule in Sec. 436.36 will be changed in the final rule to ``annual

energy audit'' to clarify that the procedures for monitoring contracts

refer only to annual energy audits used to verify post-installation

energy savings performance annually as required by section 801 of the

Act. The ``annual energy audit'' refers to an energy savings

measurement and verification procedure or method agreed to in the

contract and occurs after energy conservation measures are installed

and operational and annually thereafter throughout the contract term.

The Department recognizes that it is common industry practice to

monitor the energy savings performance of contractor installed measures

on a monthly basis. However, the final rule incorporates an annual

energy audit requirement, which at the Federal agency's discretion, may

be an annual review and confirmation of cumulative monthly energy

savings reports submitted by the contractor over a year.

A few commenters suggested that the hiring of an independent

consultant by the contractor to conduct annual verification of savings

guarantees created the appearance of a conflict of interest. Commenters

recommended that the Federal agency verify the annual energy savings

performance itself, or if it lacked the in-house expertise, pay for an

independent consultant to perform the annual energy audits. One

commenter suggested that if the agency could not perform annual savings

verification and paying for consultant services for the same was not

practicable, it could consider utilizing a consultant hired by the

contractor and approved by the government. The Department recognizes

that the Federal agency has an obligation to verify energy savings

performance which is the basis of payment and to confirm that the

government has received contracted annual energy savings. The

Department therefore agrees with the suggestion that the federal agency

is ultimately responsible for verifying annual energy savings. This may

involve an in-house review of monthly energy savings reports generated

by measurement and verification protocols incorporated in the contract,

or may involve use of a consultant as needed. The Department has

modified the proposed regulatory provisions applicable to annual energy

audits, and Sec. 436.37 reflects these modifications.

[[Page 18333]]

Extensive public comment was received on the issue of annual energy

audits, energy baselines, and energy savings measurement and

verification protocols generally. Many comments supported DOE's

proposal to avoid the use of a prescriptive method for developing

energy baselines or conducting post installation or annual energy

audits. Other commenters suggested, however, the adoption of

standardized measurement and verification protocols such as those used

in utility Demand Side Management programs in New Jersey and California

which were developed collaboratively by members of the energy services

and utility industries. The Department recognizes the value that

standardizing methods or protocols would have on streamlining or

improving government evaluations of performance contract proposals,

particularly for proposals with various energy conservation measures.

However, the Department will not regulate the methods or procedures for

establishing energy savings performance, as there are currently no

recognized national standards or protocols available for energy savings

measurement and verification. The Department, however, plans to use the

existing measurement and verification protocols recommended by several

commenters in Federal agency energy savings performance contracting

training materials to expose federal personnel to various techniques,

methods and procedures used in the energy services and utility

industries to validate energy savings performance. The Department is

actively participating in a collaborative process with the private

sector to develop a national consensus protocol for monitoring and

verification of energy service performance contracts. That protocol is

expected to be available in early 1996. In the near term, the

Department plans to provide direct technical assistance to agencies

relating to negotiation of contracts which include mechanisms to verify

energy savings performance.

One commenter suggested that two factors should be added to the

list of factors contributing to energy baseline adjustments in

Sec. 436.36(b). The recommended additional factors were ``Utility

rates'' and ``Major change of use.'' The Department agrees with the

suggestion of adding ``(7) Utility rates,'' but ``Major change of use''

is considered too ambiguous to be included the final rule.

I. Section 436.38 Terminating Contracts

Section 436.38 was proposed as Sec. 436.37. The section title has

been shortened from ``Procedures and methods to terminate contracts.''

Comments were provided with respect to the appropriate provisions

and methods for terminating an energy savings performance contract in

the event of a termination for the convenience of the government or a

termination for default. One commenter provided a very detailed

discussion of this subject, asserting that, even when the Federal

agency is receiving the guaranteed energy cost savings, a termination

for convenience could result in the contractor incurring a loss on the

contract. The commenter argues further that, because the termination

for convenience provisions of the Federal Acquisition Regulation focus

on costs incurred by the contractor in performing the work, many of the

standard provisions are inappropriate for contracts based solely on the

energy cost savings realized by the Federal agency.

Although DOE agrees that contractor compensation under an energy

savings performance contract is not tied to costs incurred, the

Department is not persuaded that the use of the standard termination

for convenience clause would result in a financial loss for the

contractor. In the Department's view, if an energy savings performance

contract is terminated for the convenience of the government, the

contractor could expect to recover its capital investment, any incurred

maintenance and repair costs (services), financing costs (including any

prepayment penalty) and a reasonable profit. As provided in

Sec. 436.35(a)(6) of the rule, ``financial charges'' are appropriate

costs which are to be reflected in payment schedules under energy

savings performance contracts.

In the example provided by the commenter in which the realized

energy savings fall considerably short of the guaranteed savings

amount, the commenter argued for special termination provisions on the

theory that there is little incentive for the agency to terminate the

contract, since the contractor is required to continue paying the

agency the guaranteed amount whether or not that amount of savings is

realized. DOE is not persuaded by this argument because it is based on

the faulty premise that a contractor would have no right to a baseline

adjustment. Section 436.37 provides for such an adjustment in

appropriate circumstances and anticipates that the details will be

negotiated as part of the contract.

The Department recognizes that, unlike contract termination under

the Federal Acquisition Regulation, termination of an energy savings

performance contract in the private sector is usually governed by a

schedule of termination amounts for each year of the contract, which is

negotiated and agreed to between the parties at the time of entering

into the contract. While the Department is not persuaded that this

termination method should be ``substituted'' for the standard

termination provisions in the Federal Acquisition Regulation, agencies

may consider such an approach on a contract-specific basis.

The provisions of the proposed rule on termination were consistent

with the Federal Acquisition Regulation. To clarify this, a new

paragraph (a) has been added to reference the applicable part of the

Federal Acquisition Regulation, 48 CFR part 49. Proposed paragraph (a)

has been retained as paragraph (b) to reinforce the requirement that

the termination liability of the Federal agency may not exceed the

cancellation ceiling set forth in the contract. Proposed paragraph (b)

has been deleted as unnecessary.

III. Procedural Requirements

A. Review Under Executive Order 12866

Today's regulatory action has been determined to be a ``significant

regulatory action'' under Executive Order 12866, ``Regulatory Planning

and Review,'' 58 FR 51735 (October 4, 1993). Accordingly, it was

subject to review by the Office of Information and Regulatory Affairs

(OIRA). OIRA completed its review without requesting any substantive

changes.

B. Review Under the Regulatory Flexibility Act

The rules were reviewed under the Regulatory Flexibility Act of

1980, Pub. L. 96-354, which requires preparation of a regulatory

analysis for any rule which is likely to have significant economic

impact on a substantial number of small entities. DOE certifies that

these rules will not have a significant economic impact on a

substantial number of small entities and, therefore, no regulatory

flexibility analysis has been prepared.

C. Review Under the Paperwork Reduction Act

New information collection requirements subject to the Paperwork

Reduction Act, 44 U.S.C. 3501, et seq., or recordkeeping requirements

are proposed by this rulemaking. Accordingly, this notice has been

submitted to the Office of Management and Budget for review and

approval of the paperwork requirements. Earlier in this notice, DOE

described two [[Page 18334]] questionnaires for use under the rule. The

first involved a contractor's qualifications for inclusion on the

qualified contractors list. The second would be directed at clients of

a contractor applicant for inclusion on the list in order to obtain

project specific information with regard to the client's experience

with the contractor.

The information DOE proposes to collect on the above-described

questionnaires is necessary to determine whether a contractor is

adequately experienced and reliable to be placed on the qualified

contractors list. DOE believes that in the typical case the frequency

of response will be once every 12 months. After the initial application

is filed, a successful contractor would only have to update information

which might have changed during the interim. The public reporting

burden is estimated to average less than two hours per response,

including the time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing the

questionnaire.

On August 8, 1994, OMB approved the collection of information

through August 1997 and assigned approval number 1910-0067.

D. Review Under the National Environmental Policy Act

Pursuant to the Council on Environmental Quality Regulations (40

CFR 1500-1508), the Department of Energy has established guidelines for

its compliance with the provisions of the National Environmental Policy

Act (NEPA) of 1969 (42 U.S.C. 4321, et seq.). Pursuant to Appendix A of

Subpart D of 10 CFR Part 1021, National Environmental Policy Act

Implementing Procedures (57 FR 15122, 15152, April 24, 1992)

(Categorical Exclusion A6), the Department of Energy has determined

that these rules are categorically excluded from the need to prepare an

environmental impact statement or environmental assessment.

E. Review Under Executive Order 12612

Executive Order 12612, 52 FR 41685 (October 30, 1987), requires

that regulations, rules, legislation, and any other policy actions be

reviewed for any substantial direct effects on States, on the

relationship between the National Government and the States, or in the

distribution of power and responsibilities among various levels of

Government. If there are sufficient substantial direct effects, then

the Executive Order requires preparation of a federalism assessment to

be used in all decisions involved in promulgating and implementing a

policy action. These rules will revise certain policy and procedural

requirements applicable only to Federal contracts. Therefore, the

Department of Energy has determined that these rules will not have a

substantial direct effect on the institutional interests or traditional

functions of States.

F. Review Under Executive Order 12778

Section 2 of Executive Order 12778 instructs each agency to adhere

to certain requirements in promulgating new regulations and reviewing

existing regulations. These requirements, set forth in section 2(a) and

(b)(2), include eliminating drafting errors and needless ambiguity,

drafting the regulations to minimize litigation, providing clear and

certain legal standards for affected legal conduct, and promoting

simplification and burden reduction. Agencies are also instructed to

make every reasonable effort to ensure that the regulation: specifies

clearly any preemptive effect, effect on existing Federal law or

regulation, and retroactive effect; describes any administrative

proceeding to be available prior to judicial review and any provisions

for the exhaustion of such administrative proceedings; and defines key

terms. DOE certifies that these rules meet the requirements of section

2(a) and (b) of Executive Order 12778.

List of Subjects in 10 CFR Part 436

Energy conservation; Federal buildings and facilities; Reporting

and recordkeeping requirements; Solar energy.

Issued in Washington, D.C. on this 31st day of March 1995.

Peter S. Fox-Penner,

Prinicpal Deputy Assistant Secretary, Energy Efficiency and Renewable

Energy.

For the reasons set forth in the preamble, Part 436 of Title 10,

Subchapter D of the Code of Federal Regulations is amended as set forth

below:

PART 436--FEDERAL ENERGY MANAGEMENT AND PLANNING PROGRAMS

1. The authority citation for Part 436 is revised to read as

follows:

42 U.S.C. Sec. 6361; 42 U.S.C. 8251-8263; 42 U.S.C. 8287-8287c.

2. Section 436.2 is amended by removing the word ``and'' after the

semicolon at the end of paragraph (b), redesignating paragraph (c) as

paragraph (d), and adding a new paragraph (c) as follows:

Sec. 436.2 General objectives.

* * * * *

(c) To promote the use of energy savings performance contracts by

Federal agencies for implementation of privately financed investment in

building and facility energy conservation measures for existing

Federally owned buildings; and

* * * * *

3. New Subpart B, consisting of sections 436.30 through 436.38, is

added to read as follows:

Subpart B--Methods and Procedures for Energy Savings Performance

Contracting

Sec.

436.30 Purpose and scope.

436.31 Definitions.

436.32 Qualified contractors lists.

436.33 Procedures and methods for contractor selection.

436.34 Multiyear contracts.

436.35 Standard terms and conditions.

436.36 Conditions of payment.

436.37 Annual energy audits.

436.38 Terminating contracts.

Subpart B--Methods and Procedures for Energy Savings Performance

Contracting

Sec. 436.30 Purpose and scope.

(a) General. This subpart provides procedures and methods which

apply to Federal agencies with regard to the award and administration

of energy savings performance contracts awarded within five years of

May 10, 1995. This subpart applies in addition to the Federal

Acquisition Regulation at Title 48 of the CFR and related Federal

agency regulations. The provisions of this subpart are controlling with

regard to energy savings performance contracts notwithstanding any

conflicting provisions of the Federal Acquisition Regulation and

related Federal agency regulations.

(b) Utility incentive programs. Nothing in this subpart shall

preclude a Federal agency from--

(1) Participating in programs to increase energy efficiency,

conserve water, or manage electricity demand conducted by gas, water,

or electric utilities and generally available to customers of such

utilities;

(2) Accepting financial incentives, goods, or services generally

available from any such utility to increase energy efficiency or to

conserve water or manage electricity demand; or

(3) Entering into negotiations with electric, water, and gas

utilities to design cost-effective demand management and conservation

incentive programs to address the unique needs of each Federal agency.

(c) Promoting competition. To the extent allowed by law, Federal

agencies [[Page 18335]] should encourage utilities to select

contractors for the conduct of utility incentive programs in a

competitive manner to the maximum extent practicable.

(d) Interpretations. The permissive provisions of this subpart

shall be liberally construed to effectuate the objectives of Title VIII

of the National Energy Conservation Policy Act, 42 U.S.C. 8287-8287c.

Sec. 436.31 Definitions.

As used in this subpart--

Act means Title VIII of the National Energy Conservation Policy

Act.

Annual energy audit means a procedure including, but not limited

to, verification of the achievement of energy cost savings and energy

unit savings guaranteed resulting from implementation of energy

conservation measures and determination of whether an adjustment to the

energy baseline is justified by conditions beyond the contractor's

control.

Building means any closed structure primarily intended for human

occupancy in which energy is consumed, produced, or distributed.

Detailed energy survey means a procedure which may include, but is

not limited to, a detailed analysis of energy cost savings and energy

unit savings potential, building conditions, energy consuming

equipment, and hours of use or occupancy for the purpose of confirming

or revising technical and price proposals based on the preliminary

energy survey.

DOE means Department of Energy.

Energy baseline means the amount of energy that would be consumed

annually without implementation of energy conservation measures based

on historical metered data, engineering calculations, submetering of

buildings or energy consuming systems, building load simulation models,

statistical regression analysis, or some combination of these methods.

Energy conservation measures means measures that are applied to an

existing Federally owned building or facility that improves energy

efficiency, are life-cycle cost-effective under subpart A of this part,

and involve energy conservation, cogeneration facilities, renewable

energy sources, improvements in operation and maintenance efficiencies,

or retrofit activities.

Energy cost savings means a reduction in the cost of energy and

related operation and maintenance expenses, from a base cost

established through a methodology set forth in an energy savings

performance contract, utilized in an existing federally owned building

or buildings or other federally owned facilities as a result of--

(1) The lease or purchase of operating equipment, improvements,

altered operation and maintenance, or technical services; or

(2) The increased efficient use of existing energy sources by

cogeneration or heat recovery, excluding any cogeneration process for

other than a federally owned building or buildings or other federally

owned facilities.

Energy savings performance contract means a contract which provides

for the performance of services for the design, acquisition,

installation, testing, operation, and, where appropriate, maintenance

and repair of an identified energy conservation measure or series of

measures at one or more locations.

Energy unit savings means the determination, in electrical or

thermal units (e.g., kilowatt hour (kwh), kilowatt (kw), or British

thermal units (Btu)), of the reduction in energy use or demand by

comparing consumption or demand, after completion of contractor-

installed energy conservation measures, to an energy baseline

established in the contract.

Facility means any structure not primarily intended for human

occupancy, or any contiguous group of structures and related systems,

either of which produces, distributes, or consumes energy.

Federal agency has the meaning given such term in section 551(1) of

Title 5, United States Code.

Preliminary energy survey means a procedure which may include, but

is not limited to, an evaluation of energy cost savings and energy unit

savings potential, building conditions, energy consuming equipment, and

hours of use or occupancy, for the purpose of developing technical and

price proposals prior to selection.

Secretary means the Secretary of Energy.

Sec. 436.32 Qualified contractors lists.

(a) DOE shall prepare a list, to be updated annually, or more often

as necessary, of firms qualified to provide energy cost savings

performance services and grouped by technology. The list shall be

prepared from statements of qualifications by or about firms engaged in

providing energy savings performance contract services on

questionnaires obtained from DOE. Such statements shall, at a minimum,

include prior experience and capabilities of firms to perform the

proposed energy cost savings services by technology and financial and

performance information. DOE shall issue a notice annually, for

publication in the Commerce Business Daily, inviting submission of new

statements of qualifications and requiring listed firms to update their

statements of qualifications for changes in the information previously

provided.

(b) On the basis of statements of qualifications received under

paragraph (a) of this section and any other relevant information, DOE

shall select a firm for inclusion on the qualified list if--

(1) It has provided energy savings performance contract services or

services that save energy or reduce utility costs for not less than two

clients, and the firm possesses the appropriate project experience to

successfully implement the technologies which it proposes to provide;

(2) Previous project clients provide ratings which are ``fair'' or

better;

(3) The firm or any principal of the firm has neither been

insolvent nor declared bankruptcy within the last five years;

(4) The firm or any principal of the firm is not on the list of

parties excluded from procurement programs under 48 CFR part 9, subpart

9.4; and

(5) There is no other adverse information which warrants the

conclusion that the firm is not qualified to perform energy savings

performance contracts.

(c) DOE may remove a firm from DOE's list of qualified contractors

after notice and an opportunity for comment if--

(1) There is a failure to update its statement of qualifications;

(2) There is credible information warranting disqualification; or

(3) There is other good cause.

(d) A Federal agency shall use DOE's list unless it elects to

develop its own list of qualified firms consistent with the procedures

in paragraphs (a) and (b) of this section.

(e) A firm not designated by DOE or a Federal agency pursuant to

the procedures in paragraphs (a) and (b) of this section as qualified

to provide energy cost savings performance services shall receive a

written decision and may request a debriefing.

(f) Any firm receiving an adverse final decision under this section

shall apply to the Board of Contract Appeals of the General Services

Administration in order to exhaust administrative remedies.

Sec. 436.33 Procedures and methods for contractor selection.

(a) Competitive selection. Competitive selections based on

solicitation of firms are subject to the following procedures--

(1) With respect to a particular proposed energy cost savings

[[Page 18336]] performance project, Federal agencies shall publish a

Commerce Business Daily notice which synopsizes the proposed contract

action.

(2) Each competitive solicitation--

(i) Shall request technical and price proposals and the text of any

third-party financing agreement from interested firms;

(ii) Shall consider DOE model solicitations and should use them to

the maximum extent practicable;

(iii) May provide for a two-step selection process which allows

Federal agencies to make an initial selection based, in part, on

proposals containing estimated energy cost savings and energy unit

savings, with contract award conditioned on confirmation through a

detailed energy survey that the guaranteed energy cost savings are

within a certain percentage (specified in the solicitation) of the

estimated amount; and

(iv) May state that if the Federal agency requires a detailed

energy survey which identifies life cycle cost effective energy

conservation measures not in the initial proposal, the contract may

include such measures.

(3) Based on its evaluation of the technical and price proposals

submitted, any applicable financing agreement (including lease-

acquisitions, if any), statements of qualifications submitted under

Sec. 436.32 of this subpart, and any other information determines to be

relevant, the Federal agency may select a firm on a qualified list to

conduct the project.

(4) If a proposed energy cost savings project involves a large

facility with too many contiguously related buildings and other

structures at one site for proposing firms to assume the costs of a

preliminary energy survey of all such structures, the Federal agency--

(i) May request technical and price proposals for a representative

sample of buildings and other structures and may select a firm to

conduct the proposed project; and

(ii) After selection of a firm, but prior to award of an energy

savings performance contract, may request the selected firm to submit

technical and price proposals for all or some of the remaining

buildings and other structures at the site and may include in the award

for all or some of the remaining buildings and other structures.

(5) After selection under paragraph (a)(3) or (a)(4) of this

section, but prior to award, a Federal agency may require the selectee

to conduct a detailed energy survey to confirm that guaranteed energy

cost savings are within a certain percentage (specified in the

solicitation) of estimated energy cost savings in the selectee's

proposal. If the detailed energy survey does not confirm that

guaranteed energy savings are within the fixed percentage of estimated

savings, the Federal agency may select another firm from those within

the competitive range.

(b) Unsolicited proposals. Federal agencies may--

(1) Consider unsolicited energy savings performance contract

proposals from firms on a qualified contractor list under this subpart

which include technical and price proposals and the text of any

financing agreement (including a lease-acquisition) without regard to

the requirements of 48 CFR 15.503 (a) and (c); 48 CFR 15.506-2(a)(1);

and 48 CFR 15.507(a), (b)(2), (b)(3), (b)(4) and (b)(5).

(2) Reject an unsolicited proposal that is too narrow because it

does not address the potential for significant energy conservation

measures from other than those measures in the proposal.

(3) After requiring a detailed energy survey, if appropriate, and

determining that technical and price proposals are adequate, award a

contract to a firm on a qualified contractor list under this subpart on

the basis of an unsolicited proposal, provided that the Federal agency

complies with the following procedures--

(i) An award may not be made to the firm submitting the unsolicited

proposal unless the Federal agency first publishes a notice in the

Commerce Business Daily acknowledging receipt of the proposal and

inviting other firms on the qualified list to submit competing

proposals.

(ii) Except for unsolicited proposals submitted in response to a

published general statement of agency needs, no award based on such an

unsolicited proposal may be made in instances in which the Federal

agency is planning the acquisition of an energy conservation measure

through an energy savings performance contract.

(c) Certified cost or pricing data.

(1) Energy savings performance contracts under this part are firm

fixed-price contracts.

(2) Pursuant to the authority provided under section 304A(b)(1)(B)

of the Federal Property and Administrative Services Act of 1049, the

heads of procuring activities shall waive the requirement for

submission of certified cost or pricing data. However, this does not

exempt offerors from submitting information (including pricing

information) required by the Federal agency to ensure the impartial and

comprehensive evaluation of proposals.

Sec. 436.34 Multiyear contracts.

(a) Subject to paragraph (b) of this section, Federal agencies may

enter into a multiyear energy savings performance contract for a period

not to exceed 25 years, as authorized by 42 U.S.C. 8287, without

funding of cancellation charges, if:

(1) The multiyear energy savings performance contract was awarded

in a competitive manner using the procedures and methods established by

this subpart;

(2) Funds are available and adequate for payment of the scheduled

energy cost for the first fiscal year of the multiyear energy savings

performance contract;

(3) Thirty days before the award of any multiyear energy savings

performance contract that contains a clause setting forth a

cancellation ceiling in excess of $750,000, the head of the awarding

Federal agency gives written notification of the proposed contract and

the proposed cancellation ceiling for the contract to the appropriate

authorizing and appropriating committees of the Congress; and

(4) Except as otherwise provided in this section, the multiyear

energy savings performance contract is subject to 48 CFR part 17,

subpart 17.1, including the requirement that the contracting officer

establish a cancellation ceiling.

(b) Neither this subpart nor any provision of the Act requires,

prior to contract award or as a condition of a contract award, that a

Federal agency have appropriated funds available and adequate to pay

for the total costs of an energy savings performance contract for the

term of such contract.

Sec. 436.35 Standard terms and conditions.

(a) Mandatory requirements. In addition to contractual provisions

otherwise required by the Act or this subpart, any energy savings

performance contract shall contain clauses--

(1) Authorizing modification, replacement, or changes of equipment,

at no cost to the Federal agency, with the prior approval of the

contracting officer who shall consider the expected level of

performance after such modification, replacement or change;

(2) Providing for the disposition of title to systems and

equipment;

(3) Requiring prior approval by the contracting officer of any

financing agreements (including lease-acquisitions) and amendments to

such an agreement entered into after contract award for the purpose of

financing the [[Page 18337]] acquisition of energy conservation

measures;

(4) Providing for an annual energy audit and identifying who shall

conduct such an audit, consistent with Sec. 436.37 of this subpart; and

(5) Providing for a guarantee of energy cost savings to the Federal

agency, and establishing payment schedules reflecting such guarantee.

(b) Third party financing. If there is third party financing, then

an energy savings performance contract may contain a clause:

(1) Permitting the financing source to perfect a security interest

in the installed energy conservation measures, subject to and

subordinate to the rights of the Federal agency; and

(2) Protecting the interests of a Federal agency and a financing

source, by authorizing a contracting officer in appropriate

circumstances to require a contractor who defaults on an energy savings

performance contract or who does not cure the failure to make timely

payments, to assign to the financing source, if willing and able, the

contractor's rights and responsibilities under an energy savings

performance contract;

Sec. 436.36 Conditions of payment.

(a) Any amount paid by a Federal agency pursuant to any energy

savings performance contract entered into under this subpart may be

paid only from funds appropriated or otherwise made available to the

agency for the payment of energy expenses and related operation and

maintenance expenses which would have been incurred without an energy

savings performance contract. The amount the agency would have paid is

equal to:

(1) The energy baseline under the energy savings performance

contract (adjusted if appropriate under Sec. 436.37), multiplied by the

unit energy cost; and

(2) Any related operations and maintenance cost prior to

implementation of energy conservation measures, adjusted for increases

in labor and material price indices.

(b) Federal agencies may incur obligations pursuant to energy

savings performance contracts to finance energy conservation measures

provided guaranteed energy cost savings exceed the contractor's debt

service requirements.

Sec. 436.37 Annual energy audits.

(a) After contractor implementation of energy conservation measures

and annually thereafter during the contract term, an annual energy

audit shall be conducted by the Federal agency or the contractor as

determined by the contract. The annual energy audit shall verify the

achievement of annual energy cost savings performance guarantees

provided by the contractor.

(b) The energy baseline is subject to adjustment due to changes

beyond the contractor's control, such as--

(1) Physical changes to building;

(2) Hours of use or occupancy;

(3) Area of conditioned space;

(4) Addition or removal of energy consuming equipment or systems;

(5) Energy consuming equipment operating conditions;

(6) Weather (i.e., cooling and heating degree days); and

(7) Utility rates.

(c) In the solicitation or in the contract, Federal agencies shall

specify requirements for annual energy audits, the energy baseline, and

baseline adjustment procedures.

Sec. 436.38 Terminating contracts.

(a) Except as otherwise provided by this subpart, termination of

energy savings performance contracts shall be subject to the

termination procedures of the Federal Acquisition Regulation in 48 CFR

part 49.

(b) In the event an energy savings performance contract is

terminated for the convenience of a Federal agency, the termination

liability of the Federal agency shall not exceed the cancellation

ceiling set forth in the contract, for the year in which the contract

is terminated.

[FR Doc. 95-8750 Filed 4-7-95; 8:45 am]

BILLING CODE 6450-01-P