ESCO Selection Process

If you’ve decided to proceed with an ESPC opportunity identified in the previous step, you’ll select an ESCO from the list you have identified.

Step 1: 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 ESPC, 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 ESPC outcome.

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 more 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.

Step 2: Develop the Request for Proposal (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 ESCO to provide services to all facilities
  • If your entity is dissatisfied with the selected ESCO or wishes to re-open the process to other ESCOs, 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 your state ESPC program for review prior to issuing. You should also consult your state or local requirements for issuing an RFP.

Prior to the response deadline, your organization will 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.

The ESCOs that have been contacted are then expected to respond to the RFP. Appropriate responses include submitting a proposal or sending a letter declining participation in the project.

Step 3: Select ESCO / negotiate IGA contract

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

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 [state]-based contractors
    • Commissioning of projects
    • Training of building operators
    • Conversions to a different fuel source

The U.S. Department of Energy's Best Practices for Selecting an Energy Service Company (ESCO) and Evaluation Workbook documents offer helpful background for this process, as does the Energy Services Coalition's ESCO Evaluation Sheet.

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 ESCO to put together a bid at the time of the RFP. Experience indicates that it is best to negotiate fees with the selected ESCO at a later point. However, it is advisable to request some basic pricing information (e.g., ranges for percentages of total project costs on typical projects) to assist in your comparison of different ESCOs. Ultimately, the main objective of this process is to select the ESCO that is best able to meet your specific needs based on experience and qualifications rather than lowest cost.

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

After evaluation of the interviewees, you’ll need to decide whether to: 1) select an ESCO; 2) decline to select one of the interviewed ESCOs and re-open interviews with non-short-listed ESCOs; 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 the IGA if the project does not move forward. If not, it may be advisable to delay entry into the ESPC 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 ESPC or paid directly using these budgeted funds.

Negotiate IGA contract

You and your chosen ESCO 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. Refer to the relevant document in your state/city/county contract template, or use DOE's Model ESPC Contract Documents.

During the negotiation phase, you may provide the ESCO with general information regarding plans, needs, problems and other factors that may affect the IGA. This information is beneficial to the ESCO in developing its approach to the IGA and the ESPC process as a whole. You or the ESCO 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 ESCO, negotiations with that firm should be formally terminated so that negotiations can begin with the next most qualified provider. If you have not been in touch with your state or local ESPC program or office, now would be a good time to let the program or office review your contract before signing.

Proceed to the next phase, Project Development.