Contractors seeing work from focus on energy savings

February 26, 2012

As the federal government promotes energy efficiency but faces declining budgets, contractors are expecting a greater focus on contracts that reward them based on the energy savings they provide.

Arlington-based Siemens Government Technologies is seeing plenty of work through what’s known as energy savings performance contracts. The company recently won a $16.8 million task order with the Army that will pay for installing a solar photovoltaic power generating system at White Sands Missile Range, N.M.

Under the terms of the contract, Siemens guarantees a certain level of energy efficiency, the savings from which go toward paying for the new systems.

The structure of the contract is useful, given the government’s tightening purse strings, said Judy Marks, president and chief executive of Siemens Government Technologies.

“So many companies right now ... do have cash on their books, they have some flexibility,” she said. The performance-based contracts provide a way “that we can finance deals that are based on achieving energy efficiency goals, that deploy proven technology, with reduced risk.”

In any given year, Honeywell is generally working on up to 50 energy savings performance contracts across the country, said Paul Orzeske, president of Honeywell Building Solutions. The company has several offices in the Washington region.

The business model “really meets the needs of what the federal government and the public sector in general needs right now,” he said. The contracts are “very transparent, they’re very open about where savings are coming from.”

One of the company’s projects is at a Federal Drug Administration facility south of Baltimore and is meant to provide on-site utilities and energy infrastructure.

Under the 20-year, $213 million contract with the General Services Administration announced last year, Honeywell is building a central utility plant that will allow the government to avoid utility costs, and upgrading lighting systems with high-efficiency fixtures and occupancy sensors.

Orzeske said use of energy savings performance contracts has surged in the last several years, some of which was spurred by stimulus spending, and Marks predicted the government will increasingly look to the contract format.

“I think you’re going to see quite a few large contract vehicles emerging over the next six to 12 months specifically targeted at that,” she said. The Pentagon “has made a commitment to driving towards the targets they signed up to on renewable energy.”

Deniece Peterson, senior manager for federal industry analysis at Herndon-based Deltek, which analyzes the government contracting market, said the Obama administration last year called on agencies to use performance-based contracts, including energy savings performance contracts, on at least $2 billion in projects.

Additionally, the administration’s call for major agency reductions in energy consumption by 2015 could push them toward ESPCs.

“These are contracts that have been attractive because the financing burden is on the vendor so the agencies really are able to get the immediate benefit of the solutions and technology,” she said.

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