The Benefits of Performance Contracting: Reduced Risk and Increased Value for K-12 Schools
November 30, 2023
Introduction
Energy savings performance contracting. It accomplishes energy-focused improvement projects with no upfront capital. Benefits include lower energy costs and reduced operations and maintenance budgets. But two additional benefits of performance contracts often get overlooked: reduced risk and increased value. Let’s dive into how performance contracts can reduce risk and increase value for K-12 school districts.
FAQ: What is performance contracting?
FAQ: How does performance contracting work in my state?
How Do Performance Contracts Create Reduced Risk for K-12 Schools?
1. Reduced Risk of Change Orders and Disruptions to the School Year
Performance contracting, or guaranteed energy savings contracting, is like the design-build construction procurement model. One firm, usually an Energy Services Company (ESCO), is solely accountable for the project. ESCOs are responsible for project design, engineering, and project management. As a result, the school district retains total control over its project from start to finish. This differs from traditional methods, where owners manage contracts with designers and constructors.
So why does this matter? Having a cohesive team means the performance contractor knows every detail before quoting the project. Performance contractors will ensure the scope is well-defined from the beginning. This includes all the improvements and upgrades needed, usually based on a previously conducted facility assessment. With a clear plan in place, the risk of unexpected changes or added costs is minimized. Some performance contractors provide a “no change order” guarantee to eliminate the risk of going over budget, which can be disruptive, cause unnecessary delays, and lead to embarrassing outcomes.
How does this ensure my project is completed on time? Because performance contracting is an integrated project delivery method, there is a clear link between the project’s design and construction. This ensures buildings work properly and communication flows smoothly. Integrated teams can mobilize faster, and the single owner contact ensures clear lines of communication. This collaboration between the owner and the performance contractor ensures items don’t slip through the cracks and projects can be completed more quickly and efficiently.
Related Reading: How to Successfully Complete Fast-Track Summer Renovation Projects
2. Reduced Risk of Poor or Costly Building Performance
Each year, K-12 school districts in the U.S. spend more on energy costs than on computers and textbooks combined. Those utility costs are the second largest budget expenditure behind salaries. School districts are often unaware of how much they are overspending from energy inefficiencies. ENERGY STAR® estimates that 30% of a district’s total energy is used inefficiently or unnecessarily. Those funds could be better directed elsewhere.
How can energy savings performance contracts help? ESCOs are experts in energy engineering and building systems. They can help reveal energy inefficiencies throughout district buildings, provide recommendations, and implement solutions. Their solutions require measuring and verifying energy savings after installation with hard guarantees for energy-efficient outcomes. They are even responsible for cutting checks if the systems do not perform as expected, reducing the risk for the Owner.
3. Reduced Risk of Hidden Costs and Paying More Than You Should
K-12 school districts must utilize a competitive selection process to select a qualified ESCO as part of the performance contracting process. This formal request for proposal approach gives school district stakeholders total control over reviewing and selecting a partner. Part of the process should include transparent, open-book, and competitive pricing.
Open book pricing takes the guesswork out of how much a project costs and reveals any unexpected costs that could pop up along the way. It provides clarity around cost structures and helps minimize markups. With it, K-12 schools can see precisely what is being purchased, where, and how much is being allocated without markup to each sub-contractor. And when paired with a no-change order guarantee, the district can feel confident that their project won’t exceed the budget.
4. Reduced Risk of Equipment Going Bad and Running Inefficiently
Performance contracting is a strategic approach that prioritizes the efficiency and longevity of substantial mechanical and electrical equipment. This encompasses the systems that form the backbone of critical operations within a facility. This includes HVAC (Heating, Ventilation, and Air Conditioning) systems, lighting, and electrical infrastructure. The goal is to ensure that these systems function optimally and maximize their useful life, thereby reducing the burden of frequent replacements and minimizing long-term costs.
Furthermore, a distinguishing feature of performance contracting is the performance assurance guarantee. Under this contract component, automated building control systems are integrated into the facility. These systems are equipped with advanced sensors and monitoring capabilities, allowing them to assess the performance of mechanical and electrical equipment continuously. If anomalies, deviations, or potential issues are detected, the system promptly notifies the facility owner or maintenance personnel. This proactive alert system serves as an early warning mechanism, enabling owners to address any problems.
How Do Performance Contracts Offer Increased Value to K-12 Schools?
1. High-Efficiency Equipment and High-Performing Buildings with Positive Cash Flow
Performance contracting can be viewed as a low-risk, high-reward investment. With low barriers to entry, including no upfront capital needed, K-12 schools can use performance contracts to not only upgrade their facilities but also receive positive cash flow from those improvements. ESCOs stand by their guarantees so stakeholders don’t have to worry about their equipment performing as intended.
But how does a performance contract ensure positive cash flow? With actual, detailed performance guarantees made at the project’s outset, K-12 schools tangibly know how much the improvements will save them and how long it will take to repay the improvement costs (usually 10 to 20 years). Depending on the improvements, K-12 schools often yield a positive cash flow from the guaranteed energy and operational savings as they outperform the improvement costs. These savings are increasingly valuable to schools seeking ways to free up dollars in the general fund.
Related FAQs: What are the characteristics of a high-performing building?
2. Improved Learning Environment
There is significant research surrounding the impact of the learning environment on student health and performance. Think humidity, air circulation, lighting, or air ventilation. These environmental factors all affect the learning environment and how it affects students. Improper levels can affect health, attendance, and overall performance. As a result, attention must be given to meeting indoor air quality, lighting, and noise standards.
How do performance contracts improve the learning environment? Some performance contract providers guarantee efficiency and energy savings and commit to ensuring optimal environments. Environmental performance doesn’t have to come at the expense of increased energy consumption, so ESCOs seek designs that combine the two. The result is an environment that improves the learning environment for students and faculty as they achieve the mission of public schools: To educate all students and promote student achievement.
3. Knowledge of Building Systems and Overall Efficiency
Often, school districts are unaware of how their buildings perform compared to similar districts. Facility assessments are a crucial first step of a performance contracting project, and they can provide a detailed overview of school building energy performance. The facility assessment report can provide in-depth insights into equipment runtimes, maintenance requirements, and building system operations. An experienced ESCO can even help inform the district about how it stacks up against similar-sized districts in energy usage.
Why is this helpful? These facility assessment reports help provide a blueprint for building operations and maintenance. They include equipment lists with notes on condition and longevity and recommendations for energy-saving solutions. This knowledge is an added value to owners and can help school districts prioritize improvement projects.
ENERGY STAR® Award Eligibility
Achieving an ENERGY STAR® Award is an accomplishment and shows a commitment to energy efficiency. The designation recognizes school buildings that use less energy, cost less, and provide an optimal learning environment for students and staff. This is an honor that schools can use to distinguish themselves from other districts.
How do performance contracts help schools achieve ENERGY STAR®? Qualified ESCOs are versed in high-performing buildings. From the initial facility assessment, they carry out a preliminary energy analysis of buildings and can provide a current ENERGY STAR® benchmark score. They can recommend and implement energy conservation measures to improve building performance while reducing energy usage. Once implemented, they can help monitor performance and provide the necessary data to apply for an ENERGY STAR® award.
Related FAQs: Why is ENERGY STAR certification so important?, What are ENERGY STAR and LEED Certifications?
Conclusion
Performance contracts can be a strategic choice for school districts. These contracts facilitate essential improvements to school facilities and provide many benefits, including enhanced energy efficiency, reduced operational costs, and guaranteed performance outcomes. The financial savings generated from performance contracts can be a game-changer for school districts. Moreover, performance contracts’ transparency, accountability, and long-term financial predictability make them a reliable and sustainable solution. School districts can foster better learning environments by choosing performance contracting, ensuring efficient building operation, and freeing up valuable resources for educational priorities.
Ready to start saving? Contact us for a no-obligation facility assessment of your district’s buildings.
Our engineers will walk your buildings, investigate your equipment, inquire about your needs, and provide the following to help your district assess if a performance contract project is right for you:
- Actionable steps for improving indoor air quality
- Opportunities for energy and operational savings
- Recommendations for long-term facility planning
- Solutions to address deferred maintenance
