Design-Build vs. Performance Contracting
Recently, attendees of the forum “Effects of Design-Build and Performance Contracting on Operations and Maintenance,” part of the recent ASHRAE Summer Meeting here, asked each other how performance contracting fits into the picture.
In plan-spec work, it was noted that the consulting engineer is contracted by the owner, and they both identify the building’s aftermarket uses. The work is then sent out for bids. In design-build projects, the contractor deals directly with the owner. Performance contracting offers a way to identify problems and correct them over time. The project is paid for with shared savings.
The biggest potential problems stem from a lack of documentation and feedback to the owner after the project is completed. According to one engineer, the amount of documentation left with the owner and operations staff depends upon the procedure and ethics of the people doing the design-build, bid-spec, or performance contracting. “All you get, if you’re lucky, is a box of stuff,” he said.
(Note: To promote a free exchange of ideas, ASHRAE forum attendees are not identified by name.)
Another engineer stated that “It doesn’t matter how it’s built. Three to five years after, you can go in and improve efficiency 10% to 40%.”
“Without feedback to the owner, performance will degrade,” agreed another.”
One engineer pointed out that performance contracts are written between the contractor and the owner, “with a very narrow path for saving. It depends on how the savings are achieved.”
Another engineer related the story of one state’s public schools, which had a performance contract managed by a company. Most of the savings, the engineer said, came out of cutting from the operations and maintenance budget.
This prompted a consulting engineer to point out that “If you’re cutting back on maintenance, it’s going to show up somewhere.”
‘Low-Hanging Fruit’In other cases, performance contracts are based on energy savings up front. In one such case, among the first things to be replaced were the 90-year-old boilers; then came the lighting upgrades. These relatively easy fixes are referred to as “low-hanging fruit.”
A major question is, is the contract written so that you have to show savings? On what do you base those savings?
An engineer said that sometimes the contracts essentially close out the work up front; they state that the savings will be achieved, the work is performed, but no evaluations are performed after the fact. In other types of contracts, results are evaluated annually. Utility invoices are compared against the original calculations.
Another attendee pointed out that “Building usage changes, too.” This is difficult to include in the performance contract. But in general, energy consumption calculations are made that are favorable to the performance contract.
A consulting engineer added that most contracts are stipulated so that the client must pay whether or not savings are achieved. In these types of contracts, “It’s best for the owner if an ESCO comes in to perform maintenance.”
It’s also imperative for the owner to understand the technological aspect of what they’re agreeing to. An attendee pointed out that “As the fruit climbs up the tree, the level of technology increases.” Owners need to consider if anyone in the operations staff understands how the new technology is supposed to function.
“It’s like everything else,” said an engineer: “Let the buyer beware.” Controls, for example, is a fairly complicated area and technology is easily misapplied.
Design-Build ProjectsA church operator commented that “We feel like our design-builder gave us what we need to operate, but there was a poor match-up of operator skills. Frankly, we look to contractors to help us out.”
This was the case of an “inherited” design-build project. “We were not included in it,” the operator said.
Another design-build problem is finding out who’s responsible for what. “It’s always the other guy,” said an engineer among chuckles of agreement.
But there are advantages to design-build. According to one consulting engineer, “There’s faster execution of the project [because] contractors can work together.” On the down side, there is “far less documentation. The operations guy lacks a whole lot of information.”
There also are problems with the project close-out. “You don’t get final documentation until you ask — a few times,” said an operations person. Depending on the company, there can be a poor final inspection and walk-through.
A contractor pointed out that in all three cases, what is needed is long-term commitment from the contractor. Also, the project team needs to expand the time frame to look at the life of a building.
“Build a relationship with the contractor, engineer, and owner,” said the contractor.
Publication date: 07/23/2001