[Federal Register Volume 60, Number 68 (Monday, April 10, 1995)]
[Rules and Regulations]
[Pages 18326-18337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8750]




[[Page 18325]]

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Part VII





Department of Energy





_______________________________________________________________________



Office of Energy Efficiency and Renewable Energy



_______________________________________________________________________



10 CFR Part 436



Federal Energy Management and Planning Programs, Energy Savings 
Performance Contract Procedures and Methods; Final Rule

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

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.

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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 [[Page 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 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 [[Page 18328]] 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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. 
[[Page 18329]] 
    Commenters recommended that paragraph (b)(4) of proposed 
Sec. 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 Sec. 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. Sec. 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:
    ______ Partnership
    ______ Corporation
    ______ Sole proprietor
    ______ Branch Office of
    ____________
    ______ Joint Venture (List venture partners)
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    ______Other (Explain) ____________
(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: ____________
(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 ______ No ______ 
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) ____________
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: ________ 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? [[Page 18330]] 
    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?

----------------------------------------------------------------------
    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 
Sec. 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 Sec. 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. [[Page 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 Sec. 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 Sec. 436.33(b) to clarify 
that, with respect to the receipt of unsolicited proposals for energy 
savings performance contracts, the provisions contained in Sec. 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 
Sec. 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 Sec. 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 Sec. 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 (Sec. 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 
[[Page 18332]] 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 Sec. 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 Sec. 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 Sec. 436.35(e) as Sec. 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 Sec. 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 Sec. 436.34 has been redesignated as Sec. 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 Sec. 436.34, which has been redesignated 
as paragraph (a)(3) of Sec. 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 Sec. 436.34(a) to Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 436.37 reflects these modifications.
[[Page 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 
Sec. 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 Sec. 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 
Sec. 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 [[Page 18334]] 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. Sec. 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:


Sec. 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


Sec. 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 [[Page 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.


Sec. 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 life-cycle 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.


Sec. 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.


Sec. 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 
[[Page 18336]] 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 
Sec. 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 
fixed-price 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.


Sec. 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.


Sec. 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 lease-acquisitions) and amendments to 
such an agreement entered into after contract award for the purpose of 
financing the [[Page 18337]] acquisition of energy conservation 
measures;
    (4) Providing for an annual energy audit and identifying who shall 
conduct such an audit, consistent with Sec. 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;


Sec. 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 Sec. 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.


Sec. 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.


Sec. 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