Energy Conservation: Energy Savings Performance Contracting in Federal
Civilian Agencies (Letter Report, 09/16/96, GAO/RCED-96-215).

Pursuant to a legislative requirement, GAO reviewed the implementation
of energy savings performance contracting by two federal civilian
agencies, focusing on the: (1) characteristics of the firms that the
Department of Energy (DOE) deemed qualified for performance contracts;
(2) firms that submitted project proposals but were not awarded
contracts; and (3) civilian agencies' responsibilities and
administrative costs.

GAO found that: (1) the National Park Service and the Federal Bureau of
Prisons (BOP) awarded energy savings performance contracts in 1995 and
1996; (2) the Park Service awarded a contract for about $2.3 million to
a firm whose technical expertise and contracting experience was
determined to be the best value; (3) energy savings improvements at the
Park Service's Ellis Island and Statue of Liberty included new lighting,
more efficient motors for air handling and pumping systems, and an
energy management control system; (4) BOP awarded a contract for about
$700,000 for a solar hot water system to the only firm qualified by DOE
to provide such a service; (5) the benefits of performance contracting
included reducing energy costs, helping agencies meet their energy
savings requirements, and creating an incentive for contractors by
linking their compensation to the savings achieved through their work;
and (6) the Park Service spent about $246,000 and BOP spent about
$70,500 in administrative costs associated with the performance
contracts.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-215
     TITLE:  Energy Conservation: Energy Savings Performance Contracting 
             in Federal Civilian Agencies
      DATE:  09/16/96
   SUBJECT:  Administrative costs
             Cost control
             Qualified bidders list
             Technical proposal evaluation
             Energy conservation
             Energy efficiency
IDENTIFIER:  Federal Energy Management Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

September 1996

ENERGY CONSERVATION - ENERGY
SAVINGS PERFORMANCE CONTRACTING IN
FEDERAL CIVILIAN AGENCIES

GAO/RCED-96-215

Energy Savings Performance Contracting

(307337)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  DOE - Department of Energy
  FEMP - Federal Energy Management Program
  LBNL - Lawrence Berkeley National Laboratory
  NREL - National Renewable Energy Laboratory
  PNNL - Pacific Northwest National Laboratory

Letter
=============================================================== LETTER


B-272782

September 16, 1996

The Honorable Frank Murkowski
Chairman
The Honorable J.  Bennett Johnston
Ranking Minority Member
Committee on Energy and Natural Resources
United States Senate

The Honorable Thomas Bliley
Chairman
The Honorable John Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

As the nation's single largest user of energy, the federal government
has emphasized energy conservation through legislation and executive
orders.  Most recently, in the Energy Policy Act of 1992, the
Congress authorized federal agencies to use energy savings
performance contracting (performance contracting) as a tool for
implementing energy conservation measures.  Under performance
contracting, a federal agency enters into a multiyear contract with a
qualified energy service company, which then installs improvements in
the agency's buildings.  The company assumes all of the up-front
capital costs and, in return, receives a portion of the annual
savings attributable to the improvements for the duration of the
contract.  The company's portion of the energy savings is paid by the
agency from funds that the agency would otherwise have used to pay
its utility costs.  Performance contracting allows the government to
reduce its energy costs without appropriating funds and without
incurring capital costs for energy-efficient improvements. 

Besides authorizing federal agencies to use performance contracting,
the Energy Policy Act of 1992 required the Department of Energy (DOE)
to develop guidelines and regulations for civilian agencies to
implement this approach.  The act also requires GAO to review the
implementation of performance contracting during the first 5 years
after DOE issued its final regulations.  These regulations went into
effect on April 10, 1995.  This report reviews the implementation of
performance contracting by civilian agencies during the first year
after DOE issued its final regulations, from April 10, 1995, to April
10, 1996.  Specifically, it provides information on (1) the civilian
agencies that have awarded energy savings performance contracts, (2)
the characteristics of the firms that DOE has listed as qualified for
performance contracts, (3) the firms that submitted project proposals
but were not awarded contracts and the reasons why, and (4) the
responsibilities of the federal civilian agencies involved in
performance contracting and the administrative costs they incurred
through their involvement. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Two federal civilian agencies awarded performance contracts during
the period of our review.  In July 1995, the National Park Service
(Park Service), within the Department of the Interior, awarded a
performance contract for about $2.3 million for energy-saving
improvements at the Statue of Liberty and Ellis Island.  The
improvements include new lighting; new, more efficient motors for the
air handling and pumping systems; and an energy management control
system.  In February 1996, the Federal Bureau of Prisons (Bureau),
within the Department of Justice, awarded a performance contract for
about $700,000 for a solar hot water system at a federal prison in
Arizona.  Because the specific technology to be installed under this
contract was available from only one firm, only that firm was
considered and awarded the contract. 

The firms that DOE had listed as qualified for performance contracts
varied widely in their characteristics--in the number of employees,
net worth, sales, and years of experience as an energy service
company.  The firms also varied in the maximum dollar amount of the
contract they would consider and in the geographical area where they
would work. 

The Park Service received three offers for its performance contract. 
The selected firm was determined as providing the most comprehensive
energy-efficient proposal at the best value.  The two rejected
offerors scored lower on the technical evaluations and were not
determined by the Park Service to be the best value to the
government.  The Bureau contract had one available offeror capable of
implementing the specific proposed solar technology. 

Contracting agencies, such as the Park Service and the Bureau, are
responsible for developing solicitations, mailing requests for
proposals to prospective offerors, and evaluating contract proposals. 
DOE, the Federal Energy Management Program (FEMP), and three of DOE's
national laboratories provide technical assistance to the contracting
agencies.  Because the Bureau, FEMP, and the Park Service do not have
accounting systems that can track the costs of their work on
individual contracts, we found their administrative costs difficult
to quantify.  We did, however, obtain estimates from DOE, the Park
Service, and/or the Bureau of $246,000 for work on the Park Service's
contract and $70,500 for work on the Bureau's contract.  These
estimates include the administrative costs for DOE's laboratories. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Energy Policy Act of 1992 and Executive Order 12902 require
federal agencies to reduce their consumption of energy in federal
buildings.  The act set a goal for the agencies of lowering their
consumption (measured in British thermal units\1 per square foot) by
20 percent below fiscal year 1985 levels by fiscal year 2000.  The
executive order, issued in March 1994, increased this goal to 30
percent by the year 2005.  Because performance contracting enables
federal agencies to implement energy efficiencies at no capital cost
to the government, the act directed the agencies to use this approach
and required DOE to establish methods and procedures for the agencies
to use in performance contracting.  DOE's performance contracting
procurement regulations went into effect on April 10, 1995. 

Performance contracting presents an alternative to appropriations as
a means of financing energy-saving capital improvements for federal
facilities.  Under this approach, a federal agency may enter into a
multiyear contract with an energy service company, which pays all of
the up-front costs of implementing the improvements.  These costs may
include identifying a federal building's energy requirements and
acquiring, installing, operating, and maintaining energy-efficient
equipment.  In addition, the contractor is responsible for training
government personnel in operating and maintaining the energy
conservation equipment and measuring the energy savings.  In
exchange, after the contracting federal agency accepts the newly
installed equipment, the contractor receives a share of the
savings--in both utility and related operations and maintenance
costs--resulting from the improvements until the contract expires. 
After that time, the federal government retains all of the savings
and equipment.  Figure 1 shows how performance contracting pays for
energy-saving improvements and lowers federal agencies' energy costs. 

   Figure 1:  Impact of
   Performance Contracting on
   Federal Utility Bills

   (See figure in printed
   edition.)

Note:  This figure does not reflect any savings in related operations
and maintenance. 

Source:  GAO's adaptation of an illustration from DOE. 

Under DOE's performance contracting procurement regulations, the
contracting federal agency is to prepare a solicitation for
prospective offerors using a model developed by DOE.  Although the
solicitation can be sent to any firm, under the Energy Policy Act of
1992, the contracting federal agency can negotiate only with firms
designated as qualified by DOE or determined to be qualified by the
contracting agency using the same selection methods and procedures as
DOE.  At DOE, a qualification review board evaluates a firm's
application package to determine whether the firm is qualified. 

At the time DOE developed its performance contracting procurement
regulations for federal civilian agencies, the Department of Defense
(DOD) had already developed a similar policy for the military
services based, in part, on its own legislative authority.\2 In
addition, DOD had already developed its own list of qualified
firms.\3 Consequently, DOE decided to accept as qualified any firm
approved by DOD.  If a firm has been approved by DOD, DOE does not
evaluate the firm's qualifications but instead requests a copy of the
application package that the firm sent to DOD and checks to ensure
that the firm is, in fact, on DOD's list of qualified firms. 

DOE's performance contracting procurement regulations direct federal
agencies to consider using DOE's model solicitation to the maximum
extent practicable.  The model solicitation establishes criteria for
evaluation and selection, including not only the cost of the proposed
work but also the firm's contracting experience and technical
expertise.  Using the model solicitation, the contracting federal
agency rates proposals against the various criteria for firms
responding to the solicitation and selects the firm whose overall
rating reflects the best value for the government. 

According to FEMP, the benefits of performance contracting for the
federal government generally include (1) reducing energy costs, (2)
improving energy efficiency and helping agencies meet their energy
savings requirements, (3) eliminating the costs of maintaining and
repairing aging or obsolete energy-consuming equipment, (4) making
contractors rather than the government responsible for operating and
maintaining energy-saving equipment, and (5) creating an incentive
for contractors to develop highly efficient improvements by linking
their compensation to the savings achieved through their work. 


--------------------
\1 A British thermal unit is the quantity of heat required to raise
the temperature of 1 pound of water 1 degree Fahrenheit. 

\2 DOD's authority is contained in the National Defense Authorization
Act for Fiscal Year 1991. 

\3 DOD approved 20 firms for its 1995 list of qualified firms and 52
firms for its 1996 list.  DOD's program year runs from January 1 to
December 31.  DOD completes its single, annual application review and
publishes its approved list before DOE starts the cycle for updating
its list on February 1.  DOE, however, accepts applications
continuously and reviews them throughout the year. 


   CIVILIAN AGENCIES' PERFORMANCE
   CONTRACTS
------------------------------------------------------------ Letter :3

As of April 10, 1996, two civilian agencies, the National Park
Service and the Federal Bureau of Prisons, had each awarded a
performance contract using DOE's April 10, 1995, performance
contracting procurement regulations.\4


--------------------
\4 In addition, as of August 12, 1996, one other civilian agency, the
Department of State, had awarded a performance contract for its
Washington, D.C., headquarters, according to FEMP.  However, because
this contract was recently awarded, we did not include it in our
review. 


      THE NATIONAL PARK SERVICE'S
      CONTRACT
---------------------------------------------------------- Letter :3.1

The Park Service was the first federal civilian agency to award a
performance contract under DOE's performance contracting procurement
regulations.  This contract, for about $2.3 million in energy
conservation measures at the Statue of Liberty National Monument and
Ellis Island, was awarded on July 25, 1995.  The contractor is to
reduce energy consumption at both Ellis and Liberty islands by
installing energy-efficient interior and exterior lighting, highly
efficient motors for the air handling and pumping systems, and an
energy management control system.  The contractor is to provide,
finance, install, and maintain the equipment for 15 years in exchange
for a portion of the energy savings realized each year.  After the
Park Service accepts the equipment, the contractor will, for the
duration of the contract, receive compensation from the Park Service
from funds in its budget that would otherwise have gone to pay its
utility bill.  According to the contract, the contractor will be
reimbursed for its costs, which include capital and financing costs
and a profit, in accordance with a multiyear schedule contained in
the contract.  The contractor is also to receive a rebate\5

of about $1.1 million from the local utility--Public Service Electric
and Gas Company--in New Jersey after the equipment included in the
rebate program has been installed and its performance has been
verified.  This rebate made the project "economically attractive" for
the contractor, according to the Park Service's contracting officer. 
The Park Service, meanwhile, is guaranteed at least $1 annually and,
at the end of the 15-year contract period, will acquire energy-saving
equipment valued in 1995 at about $1.2 million, thereby eliminating
the need to obtain appropriations for this capital equipment.  All
savings in excess of $1 will also go to the agency.  For example, the
total savings to the agency during the first year are expected to be
about $27,000, according to an official at DOE's National Renewable
Energy Laboratory (NREL). 

The Park Service began the performance contracting process by
preparing a solicitation for prospective offerors.  In this
solicitation, it identified the terms of the contract and included
the criteria for evaluating proposals and the measures that the Park
Service believed would increase the facilities' energy efficiency. 
The Park Service sent the solicitation to about 160 prospective firms
and received proposals from 3 of them.  Two of the three were on
DOE's list of qualified firms when they submitted their proposals;
one was not.  The Park Service reviewed but did not select the
proposal from the firm that was not on the list.  Had the Park
Service wanted to select that proposal, it could not have done so
until the firm had been approved for DOE's list. 

For 11 months after receiving the proposals, the Park Service
discussed them with the offerors, exchanged information, and amended
the solicitation to reflect the results of mutual decisions or of
decisions made by the Park Service to add some items or delete others
that had proved infeasible.  The offerors modified their proposals in
response to the amended solicitation, and an evaluation team,
consisting of staff from the Park Service and advisers from DOE's
Lawrence Berkeley National Laboratory (LBNL) and NREL, reviewed the
final proposals using technical and cost criteria.  The Park Service
assigned the highest technical score to the proposal offered by
CES/Way International, Inc., of Houston, Texas, determining that it
was the "best value" and "most advantageous to the government."

According to Park Service staff, the Park Service's performance
contract is unique not only because it was the first awarded under
DOE's April 1995 final regulations but also because it involved work
on nationally significant structures that warranted special
consideration.  For example, the buildings' historic or aesthetic
qualities had to be preserved, and the work had to be scheduled so as
not to interfere with the museums' normal operations. 

We discussed the practicality of the contract provision that
guarantees that the government will receive $1 in energy savings and
all energy savings exceeding the guaranteed amount during our visit
to Ellis Island.  Some of the on-site Park Service staff and the
on-site CES/Way representative we interviewed said that the
arrangement did not provide a strong incentive to the contractor to
maximize the potential savings available at the facility.  The NREL
staff person who helped DOE develop the model solicitation said that
FEMP and NREL staff had discussed the feasibility of including
language in the solicitation that would have created such an
incentive, giving the contractor a share in any savings exceeding the
guaranteed amount.  They did not include the language, the NREL staff
person explained, because they were unable to develop criteria
specifically for evaluating proposals containing an incentive option. 
FEMP and NREL staff agreed to reconsider an incentive option and
acknowledged that such an option, where and when applicable, could
bring further benefits to both the government and the contractors. 


--------------------
\5 The rebate in this case is a stream of payments from the utility
for the installation and performance of specific energy-efficient
equipment.  The rebate offsets the capital costs of the equipment
installed. 


      THE FEDERAL BUREAU OF
      PRISONS' CONTRACT
---------------------------------------------------------- Letter :3.2

On February 13, 1996, the Bureau awarded a 20-year performance
contract for about $700,000 for a solar hot water system at a federal
prison in Phoenix, Arizona.  In part because the project would
demonstrate the viability of solar technology to reduce the use of
conventional energy and would therefore support both FEMP's mission
to assist agencies in reducing their use of conventional energy and
NREL's mission to promote renewable energy technologies, a
cooperative research and development agreement was used to develop
the proposal, according to an NREL official who assisted with the
project.  Since the specific solar technology to be installed under
this performance contract was available from only one source, the
NREL official said, only one firm was considered for the award.  The
contract was awarded to the Industrial Solar Technology Corporation
of Golden, Colorado.  Construction for the project is not scheduled
to begin until the fall of 1996, according to an official in the
Bureau's Facilities Management Branch. 


   CHARACTERISTICS OF FIRMS ON
   DOE'S LIST OF QUALIFIED FIRMS
------------------------------------------------------------ Letter :4

For 1995, DOE received 97 applications from 88 applicants for
inclusion on a list of qualified firms, which the Energy Policy Act
of 1992 directed DOE to prepare.  In total, 58 firms were found to be
qualified, including 20 that DOD had previously approved.  Ten of the
88 were not found to be qualified.\6 An additional 20 applications
were pending at the end of the 1995 application cycle.  To identify
the characteristics of the qualifying firms, we reviewed the
application files that DOE was able to provide at the time of our
review.\7 Some of the applicants whose files we reviewed did not
respond to all of DOE's requests for data. 

Our review of the application files that were available for 53 of the
58 approved firms revealed substantial differences among these firms. 
Under the Small Business Administration's criteria, 25 of these firms
were classified as small and 28 were not classified as small.  Two
classified themselves as disadvantaged and 51 did not classify
themselves as disadvantaged.  Three classified themselves as
woman-owned and 50 did not classify themselves as woman-owned.  The
average number of employees\8 for the 51 approved firms providing
this information ranged from 6 to 54,800; the median number was 55. 
The net worth of the 45 approved firms providing this information
ranged from $100,000 to over $3.9 billion; the median figure was
about $2.3 million.  The average sales of the 48 approved firms
providing this information ranged from $10,000 to $6.4 billion; the
median figure was $5 million.  Some of the firms with the largest
average number of employees, net worth, and/or average sales were
utility companies. 

In other respects, the approved firms also differed substantially
from one another.  For the 53 whose files were available, the number
of years' experience as an energy service company ranged from 2 years
to 179 years; the median number of years was 12.  For the 52 firms
providing this information, the maximum dollar amount of the contract
that a firm would accept ranged from $1 million to $100 million; the
median amount was $20 million.  Eleven firms indicated that they
would accept a contract of any amount.  Of the 53 firms, 39 indicated
that they would apply for performance contracts nationwide while 14
indicated that they would work only in specific regions. 


--------------------
\6 For the 1996 cycle, which runs from February 1, 1996, to January
31, 1997, DOE had approved 85 firms, as of August 12, 1996. 

\7 At the time of our review, DOE was unable to provide the files for
eight applicants, including five that were approved, because the
files had been misplaced when FEMP changed support contractors,
according to FEMP officials. 

\8 Applicant firms are required to provide their average number of
employees for the four preceding calendar quarters. 


   REJECTED PROPOSALS FOR
   PERFORMANCE CONTRACTS
------------------------------------------------------------ Letter :5

Consistent with the Energy Policy Act of 1992, DOE's April 1995
performance contracting guidance permits contracts to be awarded on
the basis of the best value to the government rather than the lowest
price.  Consequently, the Park Service's evaluation board, after
reviewing each of three offerors' proposals, selected the firm whose
technical proposal represented the best value to the government.  The
board determined that this firm provided the most comprehensive and
technically sound energy-efficient proposal.  One of the three firms
that submitted a proposal to the Park Service was not on DOE's list
of qualified firms when it submitted the proposal. 

As noted earlier, an offeror does not have to be on DOE's list of
qualified firms at the time it submits a proposal.  The firm must
submit an application to DOE in time for the qualification review
board to review and, if appropriate, approve it before contract
negotiations begin. 

For the Bureau contract, only one firm was considered because the
specific solar technology to be used was available from only one
source, according to an NREL official. 


   FEDERAL AGENCIES'
   RESPONSIBILITIES AND
   ADMINISTRATIVE COSTS
------------------------------------------------------------ Letter :6

The contracting agencies, such as the Park Service and the Bureau,
are responsible for developing solicitations, mailing requests for
proposals to prospective offerors, and evaluating contract proposals. 
DOE, FEMP, and three of DOE's national laboratories provide technical
assistance to the contracting agencies.  Quantifying the
administrative costs that these federal agencies have incurred
through their involvement has been difficult because the agencies, in
general, do not have accounting systems that can track the costs of
their work on individual contracts.  These costs include, for
example, salaries and travel for the full range of activities needed
to successfully enter into a performance contract. 


      FEDERAL AGENCIES'
      RESPONSIBILITIES
---------------------------------------------------------- Letter :6.1

Performance contracting involved the Park Service and the Bureau in a
variety of administrative activities, such as developing
solicitations and mailing them to prospective offerors, placing
notices in the Commerce Business Daily, conducting site tours for
prospective offerors, evaluating contract proposals, and negotiating
with the successful offeror. 

DOE's agencies--FEMP and up to three of the national laboratories,
NREL, LBNL, and the Pacific Northwest National Laboratory
(PNNL)--provided technical assistance to the contracting agencies. 
They helped to prepare solicitations, evaluate firms for DOE's list
of qualified firms, evaluate project proposals, develop rules and
regulations, and finalize contract awards.  In addition, FEMP trains
staff from federal agencies interested in entering into performance
contracts. 

FEMP has acted as a facilitator, linking the federal agency seeking
energy-saving improvements with the laboratory that can best assist
the agency.  To link the two, FEMP prepares a work order for the
laboratory and sends it to a central location--the field office in
Golden, Colorado--to be assigned.  This work order is a task order or
a modification to a master contract already in place with the
laboratory. 

According to FEMP and NREL staff, NREL assisted in developing the
model solicitation for energy savings performance contracting, which
is available for any agency to use in developing its performance
contract.  Specifically, NREL provided technical assistance to both
the Park Service and the Bureau in developing and/or evaluating their
individual performance contracts. 

LBNL led the development of new guidelines for federal energy
projects, which can be used to measure and verify the energy and cost
savings associated with federal agencies' performance contracts.\9
LBNL staff conduct the metrics portion of the performance contracting
training provided by FEMP.  Specifically, LBNL provided an adviser to
the technical board for the Statue of Liberty/Ellis Island contract's
evaluation process. 

PNNL staff performed the baseline energy-use audits for the Park
Service's performance contract. 


--------------------
\9 Measurement and Verification (M&V) Guideline for Federal Energy
Projects, DOE, FEMP (DOE/GO-10096-248, Feb.  1996). 


      FEDERAL AGENCIES'
      ADMINISTRATIVE COSTS
---------------------------------------------------------- Letter :6.2

The federal agencies that worked on the Park Service's and the
Bureau's performance contracts estimated their administrative costs
because they do not have accounting systems that can track the costs
of their work on individual contracts.  We obtained estimates from
DOE, the Park Service, and/or the Bureau of about $246,000 for work
on the Park Service's contract and $70,500 for work on the Bureau's
contract.  These estimates include the applicable costs for DOE's
national laboratories. 


         COSTS OF THE PARK
         SERVICE'S CONTRACT
-------------------------------------------------------- Letter :6.2.1

The Park Service was unable to provide exact data on the
administrative costs associated with its performance contract.  The
staff who worked on this contract also had other responsibilities,
and their record-keeping process did not provide for charging time to
specific performance contracting tasks.  The Park Service did,
however, provide the number of staff that worked on the contract and
their estimated salary costs.  A Park Service official estimated
salary costs of $87,559 for the 12 staff who worked on the contract
during 1993-96.  In addition, he estimated other administrative costs
of $5,000, for travel, training, mailing, telephone, and paper costs. 
According to this official, the costs for subsequent performance
contracts would probably be lower because the agency would benefit
from its experience with the first contract.  Department of the
Interior officials stressed that a team needs to be formed to assist
civilian agencies in developing and implementing performance
contracts, which are much more complex than other, more traditional
forms of contracting. 

We obtained administrative cost estimates for the three laboratories
that assisted with this contract.  NREL staff estimated total costs
of about $17,000 for two NREL staff for about 2 to 3 months each and
one NREL technical consultant for about 9 days.  This estimate
includes travel expenses.  NREL was able to estimate its costs for
the Park Service's contract because several staff worked for extended
periods with the Park Service and FEMP in developing the
solicitation, serving on the evaluation panel for the project
proposals, and providing assistance to the Park Service at the
facility.  The cost of PNNL's assistance in performing energy audits
was $125,000, according to FEMP staff.  An LBNL official estimated
administrative costs of about $2,500, including travel costs, for the
one staff person who participated on the evaluation panel for this
contract. 

FEMP officials noted that FEMP's accounting system is not set up to
track specific project support costs because many of FEMP's
activities support a number of agencies simultaneously.  FEMP
officials, however, estimated administrative costs for the three
staff persons associated with this contract at $8,900, including
travel costs.  FEMP staff, for example, assisted the Park Service by
providing a list of firms to which the solicitation could be mailed. 


         COSTS OF THE BUREAU'S
         CONTRACT
-------------------------------------------------------- Letter :6.2.2

According to Bureau officials, the Bureau's administrative costs are
estimated because tracking these costs would be labor intensive.  The
Bureau estimated that it incurred costs of $17,500 for salaries for
two staff, related travel expenses during fiscal years 1993-96, and
other miscellaneous contract-related administrative expenses. 

NREL estimated that its administrative costs for the Bureau's
contract were about $53,000, including travel expenses.  These costs
covered the work of three staff who visited the site and/or helped to
prepare the solicitation, develop baseline data, and review the
technical proposal. 

FEMP had no administrative costs directly associated with this
contract. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We transmitted a draft of this report to the Secretary of Energy for
review and comment.  We met with officials of the Department,
including the Director of FEMP, who generally agreed with the
report's findings.  They provided technical and editorial revisions,
which we incorporated as appropriate.  We also transmitted a draft of
this report to the Secretary of the Interior for review and comment. 
We met with officials of the Department, including the National Park
Service's Deputy Superintendent of the Statue of Liberty/Ellis
Island, who agreed with the report's findings.  They provided
technical and editorial revisions, which we incorporated as
appropriate.  We transmitted pertinent sections of a draft of this
report to officials with the Department of Justice's Federal Bureau
of Prisons for review and comment.  The Bureau suggested wording
concerning its tracking of contract costs, which we incorporated as
appropriate. 


---------------------------------------------------------- Letter :7.1

We performed our work from December 1995 through August 1996 in
accordance with generally accepted government auditing standards. 
Appendix I provides more information on our objectives, scope, and
methodology. 

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 7 days after the date of this letter.  At that time, we will
send copies to the appropriate congressional committees, the
Secretary of Energy, the Secretary of the Interior, the Attorney
General, and other interested parties.  We will also make copies
available to others on request. 

Please call me at (202) 512-3841 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
II. 

Victor S.  Rezendes
Director, Energy, Resources,
 and Science Issues


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The Energy Policy Act of 1992 requires GAO to review the 5-year pilot
program for energy savings performance contracting.  As agreed with
congressional staff, we provided information on

  -- the number of performance contracts awarded by civilian
     agencies, from April 10, 1995, to April 10, 1996, under DOE's
     final performance contracting procurement regulations;

  -- the characteristics of the firms on DOE's list of the firms
     qualified for performance contracting;

  -- the firms that submitted project proposals but were not awarded
     contracts and the reasons why; and

  -- the responsibilities of the federal civilian agencies involved
     in performance contracting activities and the administrative
     costs they incurred through their involvement. 

To determine the number of energy savings performance contracts
awarded during the first year after the issuance of DOE's final
regulations, we contacted DOE's FEMP office and reviewed its data
files of awarded contracts.  We did not review any energy-related
performance contracts awarded before DOE issued the final
regulations. 

To determine the specifics of the Statue of Liberty/Ellis Island
contract, we visited Liberty and Ellis islands and interviewed Park
Service staff, including the superintendent, the professional
services division chief, and the contracting officer.  In addition,
we interviewed the awardee contractor and representatives of the
participating utility company.  For information on the Bureau's
performance contract, we contacted Bureau and NREL staff. 

To determine the number and characteristics of the applicant firms
and those approved for DOE's list of qualified firms and these firms'
characteristics, we reviewed the applications submitted to DOE from
April 10, 1995, through February 26, 1996.  These files were
maintained by a DOE contractor--Enterprise Advisory Services,
Inc./Advanced Sciences, Inc.--that assisted with the review and
evaluation process for the list of qualified firms.  We obtained
information from the Park Service on the reason why it rejected
qualified offerors' project proposals. 

To determine the responsibilities of the federal civilian agencies
involved in performance contracting and to gather relevant
administrative cost data, we obtained information from the awarding
agencies (the Park Service and the Bureau), FEMP, and NREL. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION WASHINGTON,
D.C. 

Bernice Steinhardt, Associate Director
Peg Reese, Assistant Director
Charles Hessler, Evaluator-in-Charge
Nancy Bowser

OFFICE OF THE GENERAL COUNSEL

Jackie A.  Goff, Senior Attorney

RELATED GAO PRODUCTS

Energy Conservation:  Contractors' Efforts at Federally Owned Sites
(GAO/RCED-94-96, Apr.  29, 1994). 

Energy Conservation:  Federal Agencies' Funding Sources and Reporting
Procedures (GAO/RCED-94-70, Mar.  30, 1994). 

Energy Conservation:  DOE's Efforts to Promote Energy Conservation
and Efficiency (GAO/RCED-92-103, Apr.  16, 1992). 

*** End of document. ***