Commissioning Escrow Accounts
A colleague and I met with a group of code officials to discuss new commissioning requirements in an updated energy code that recently went into effect. We were talking about what the code called for in terms of enforcement and what the inspectors should expect with respect to documentation from commissioning professionals. This led to a more generic discussion about code enforcement in general and the inspectors’ frustration with being pressured to sign off on buildings that do not necessarily meet all code requirements.
Buildings are often accepted for occupancy on a temporary basis, contingent on the project team completing a documented list of outstanding code requirements within one year. However, there are typically no consequences for the project team not meeting those code requirements after one year. What are the inspectors supposed to do, throw the occupants out of the building?
I imagine every city, county, or state has their own way of dealing with this situation, and one of the inspectors shared an approach used by a previous jurisdiction in which he served. When a contractor applied for a permit, the contractor not only had to pay the permit fee, s/he also needed to set up an escrow account, the size of which I assume was proportional to the value of the construction cost. The funds in the escrow account were released upon completion of all required code activities and deliverables. Presumably, if code requirements went unmet after a certain period of time, the contractor forfeited the escrow money.
As we are always looking for ways to motivate construction teams to take commissioning seriously and see a project through to successful operation and not just successful installation, I got to thinking about this escrow model for commissioning contracts. We have worked on projects where the contractor was motivated with “award fee” money for meeting certain commissioning milestones. The award fee was over and above the base contract amount and came out of the owner’s project budget.
The beauty of the escrow model is that the money would come out of the contractor’s pocket as a prerequisite for signing a contract. This is a negative incentive, i.e., if the contractor does not meet contract commissioning requirements, she loses money. However, by the end of construction, it may actually feel like a positive incentive, i.e., the contractor will get her money back if she sticks with the commissioning process through successful completion and documentation.
Exactly which objective commissioning milestones or deliverables are tied to the escrow account would be defined by each owner, depending on the owner’s priorities. I recommend considering the following.
- Operations & maintenance manuals
- Operations & maintenance training
- As-built drawings
- LEED systems manual contributions
- Spare parts delivery
- Test, adjust, and balance report indicating all system parameters meet design requirements
- Successful correction of all system performance deficiencies agreed to be the contractors’ responsibility.
In order to encourage timely delivery of each requirement, it might make sense to start whittling away at the value of the escrow account a little bit every month over the course of an allotted time period. For example, if the owner wants all of the above delivered within two months of substantial completion, perhaps the owner gets to withdraw 25% of the escrow account after each of the third, fourth, fifth, and sixth months.
I would steer away from assigning individual values to each requirement because that could easily lead to the contractors making a value decision about the cost of delivering each of the bullet items versus the escrow value of that item. They could decide it is cheaper to lose the assigned escrow amount than to produce the product. Invariably, the intrinsic value of the commissioning deliverables is much greater to the owner than any escrow account could reasonably hold. Requiring an all-or-nothing criterion for releasing the escrow money is a means to gain and hold the contractors’ attention to every detail.
Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!
