18326 Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations

DEPARTMENT OF ENERGY

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 436

[Docket No. EE–RM–94–201]

RIN 1904–AA62

Federal Energy Management and

Planning Programs; Energy Savings

Performance Contract Procedures and

Methods

AGENCY: Department of Energy.

ACTION: Final Rule.

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
Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations 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 § 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 § 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 § 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 § 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
18328 Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations

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

§ 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

§ 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

§ 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 § 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

§ 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.
Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations 18329

Commenters recommended that

paragraph (b)(4) of proposed § 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 § 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. § 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:

lll Partnership

lll Corporation

lll Sole proprietor

lll Branch Office of

llllll

lll Joint Venture (List venture

partners)

lllllllllllllllllll

lllllllllllllllllll

lllOther (Explain) llllll

(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:

llllll

(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 lll No lll 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) llllll

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: llll 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?
18330 Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations

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?

lllllllllllllllllll

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 § 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

§ 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.
Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations 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 § 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 § 436.33(b) to clarify that, with

respect to the receipt of unsolicited

proposals for energy savings

performance contracts, the provisions

contained in § 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 § 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 § 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 § 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 (§ 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
18332 Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations

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

§ 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 § 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

§ 436.35(e) as § 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 § 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 § 436.34 has been

redesignated as § 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 § 436.34,

which has been redesignated as

paragraph (a)(3) of § 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 § 436.34(a) to

§ 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

§ 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

§ 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

§ 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 § 436.37 reflects these

modifications.
Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations 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 § 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

§ 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

§ 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
18334 Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations

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. § 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:

§ 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

§ 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
Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations 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.

§ 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 lifecycle 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.

§ 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.

§ 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
18336 Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations

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 § 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 fixedprice 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.

§ 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.

§ 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 leaseacquisitions) and amendments to such

an agreement entered into after contract

award for the purpose of financing the
Federal Register / Vol. 60, No. 68 / Monday, April 10, 1995 / Rules and Regulations 18337

acquisition of energy conservation

measures;

(4) Providing for an annual energy

audit and identifying who shall conduct

such an audit, consistent with § 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;

§ 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 § 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.

§ 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.

§ 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