Step 2 - Energy Service Provider (ESP) Selection Process

If you have decided to proceed with an Energy Performance Contract opportunity identified in the previous step, next you will select an Energy Service Provider (ESP) from the pre-qualified list.

Engage Owner's Representative

One of the biggest keys to a successful project is to have an expert by your side. Unless your organization has experience with EPC, having an expert to help guide you through the process and avoid the pitfalls has proven to be a major factor in achieving a favorable EPC outcome.

We recommend engaging an owner's representative early in the process to make sure you have all the support necessary for a successful experience. The cost of an owner’s rep can be folded into the project financing. A third party representative can serve as a liaison between you and the ESP and help ensure that the project is within scope to achieve financing objectives, that construction standards meet code and project performance criteria are met. In the event that the cost savings doesn’t meet the guarantee, the representative can help you negotiate a shortfall agreement. These representatives often have worked for ESPs, have engineering backgrounds and are experts in the industry. However determining to use a representative is a cost to benefit consideration that is your choice. For assistance identifying potential representatives, please contact us.

The cost of an experienced owner’s representative will vary with the size of the project. Two to three percent of the overall project cost is typical for a mid-size project (say $1,000,000); the percentage will likely be smaller on larger projects and greater on smaller ones. The cost can typically be added to the project and included in the financing so that the cost can be repaid by the energy savings. This may have the effect of reducing the number of improvements that can be financed, but a successful and slightly smaller project is preferable to a slightly larger but struggling one

Develop Request for Proposal (RFP)

Using the RFP - Request for Proposals template, you will gather and organize information about the facility and proposed improvements to complete Attachment A: Technical Facility Profile in the RFP. The information includes utility use and cost history; completed upgrades; plans for renovations or changes; comfort and maintenance issues; capital needs or funds available; desired outcome; and other pertinent details about the proposed project.

The other attachment, Cost and Pricing Proposal, will be filled in by the ESPs who respond to the RFP. It requests only general information; the intent is to select the ESP based on qualifications and suitability for the needs of your entity. The only cost information suggested is contained in Attachment B: Cost and Pricing Proposal in the RFP.

You may want to consider developing the RFP to consider multiple phases based on the facilities to be included in the overall project. This is particularly useful for larger campuses or entities with multiple facilities. The benefits for phasing include:

  • One RFP to select the ESP to provide services to all facilities
  • If your entity is dissatisfied with the selected ESP or wishes to re-open the process to other ESPs, you can issue a new RFP for subsequent phases

When considering phases, it is important that the RFP contain language defining the initial scope of work (facilities) and references that the scope may include additional facilities.

If this language is not included, then a new RFP will be required for additional phases or facilities. The completed RFP should be submitted to DEQ for review prior to issuing. You will then need to give at least 14 days' public notice of the RFP. The notice must be published at least once a week for two consecutive weeks in a newspaper of general circulation in the area where the project is located. The RFP must be sent to at least three ESPs on DEQ’s Prequalified ESPs list.

Prior to the response deadline, your entity may host pre-submittal informational meetings. During these meetings, you’ll describe the proposed project, review pertinent information, conduct walk-throughs of the appropriate buildings, and otherwise answer any outstanding questions.

In return, the ESPs that have been contacted are expected to respond to the RFP. Appropriate responses include submitting a proposal or sending a letter declining participation in the project. Failure of a contacted ESP to respond is unacceptable and could potentially result in the ESP’s removal from the EPC program.

Select Energy Service Provider (ESP)

Depending on the number of responses, the exact nature of the evaluation process may vary. In general though, you should review the ESPs’ submissions and develop a short list of ESPs you wish to interview.

The U.S. Department of Enerrgy’s EPC – How to Select an ESP and Evaluation Workbook documents offer helpful background for this process, as does ESC’s ESP Evaluation Sheet.

You will want to evaluate qualifications based on, but not limited to, the following capabilities and criteria:

  • Quality of technical approach
  • Experience with:
    • Design, engineering, installation, maintenance, and repairs associated with cost-saving measures
    • Overall project management
    • Projects of similar size and scope
    • Post-installation measurement and verification of guaranteed cost savings
    • In-state projects and Montana-based contractors
    • Commissioning of projects
    • Training of building operators
    • Conversions to a different fuel source

Please note that price or cost is not a part of the selection process. This is due to the fact that the project scope is likely not fully developed to allow the ESP to put together a bid at the time of the RFP. Experience indicates that it is best to negotiate fees with the selected ESP at a later point. However, it is advisable to request some basic pricing information (e.g., ranges of percentages of total project costs on typical projects) to assist in your comparison of different ESPs. Ultimately, the main objective of this process is to select the ESP that is best able to meet your specific needs based on experience and qualifications rather than lowest cost.

You will then interview the shortlisted ESPs. The ESP’s interview team must consist of the individuals that will be assigned to the project. The ESP should be prepared to present in detail the criteria above which will be evaluated according to the Montana rules and legislation.

After evaluation of the interviewees, you’ll need to decide whether to:

  1. Select an ESP
  2. Decline to select one of the interviewed ESPs and re-open interviews with non-short-listed ESPs or
  3. End the selection process and put the project on hold for some period of time.

Before continuing, it’s important to consider again whether your organization has the funds available to pay for an Investment Grade Audit (IGA) if the project does not move forward and there are no energy cost savings to pay for the IGA. If not, it may be advisable to delay entry into the EPC process as there are times when the process does not move beyond the audit stage. In such cases, the cost of the IGA must then be absorbed in full by your organization. Assuming that the project does move forward, the costs of the audit may be rolled into the EPC or paid directly using these budgeted funds.

Negotiate Investment Grade Audit (IGA) Contract

You and your chosen ESP will now need to determine an agreed-upon project scope, including which buildings will be audited, total square footage, and overall price for the IGA and project proposal. The IGA - Investment Grade Audit and Project Proposal Contract can serve as an objective third-party template to help facilitate the process of reaching agreement.

The IGA Price Guidelines may also be helpful in providing a sense of the typical costs of an IGA for various facility types. Please note that the prices are only a guideline range. Depending on the situation, costs may increase by up to 50 percent.

During the negotiation phase, you may provide the ESP with general information regarding plans, needs, problems and other factors that may affect the IGA. This information is beneficial to the ESP in developing its approach to the IGA and the EPC process as a whole. You or the ESP may have specific measures you would like evaluated in the IGA; however, the audit should look at all cost-saving opportunities.

If you are unable to negotiate a satisfactory contract with the selected ESP, negotiations with that firm should be formally terminated so that negotiations can begin with the next most qualified provider. The contract should be submitted to DEQ for review prior to signing. The ESP is responsible for sending an electronic copy of the fully executed contract to DEQ.