Georgia Performance Contracting Law


The Good News:

GEFA’s David Godfrey announced at the Georgia Energy Services Coalition meeting on Thursday that the procurement process for the first state performance contracting project in Georgia has begun.  The first project will be at Phillips State Prison in Buford, Georgia.  At first, the timeline looked promising—an ESCO would be selected by July 19th and an investment grade audit would be completed by October.  This was good news considering that prequalified ESCOs were just announced last week.

The Bad News:

However, the performance contract will not be signed until July 2013.  Yes, a full nine months after the energy audit is completed and more than two years after the performance contracting statute came into effect.

The reason given for the lengthy delay between the audit and the contract signing was that  GEFA is financing this project through general obligation bonds.  That means that the project essentially must go through the state budget cycle.  The amount of the project must be submitted to the Georgia Office of Budget Planning by October 2012 in order to be considered and approved by the Governor for the 2013 budget.   According to Godfrey, the contract cannot be signed until the funds have been approved.

So, the state will lose out on the energy savings that could have been generated in the period from October 2012 through until the project is completed sometime after July 2013.  But also, it will be hard for the winning ESCO to accurately forecast prices and costs that far in advance, and with no mechanism built into the agreement for cost escalation, the ESCO will likely have to factor in a contingency (i.e increase the price of the contract to hedge against unknown cost escalations) that otherwise would not be needed if the project were proceeding immediately.  The state may also end up paying more for financing, as interest rates may increase between now and next summer.

The Really Bad News:

There will not be any other performance contracts procured by the state through GEFA until this pilot project is completed and deemed a “success.”  And, Godfrey was noncommittal as to whether this would be the procurement model for all future performance contracts (requiring each one to be approved to be in the following year’s budget).

If this is true, then there will be no other performance contracts solicited until at least late 2013 or early 2014, and if they are also subject to the same budget cycle delays, those projects would not be constructed until 2014 or 2015.   This is a huge disappointment to the ESCO and performance contracting industries, who have moved resources and personnel to Georgia over the last 18 months in anticipation of a growing performance contract market.  It is also a disappointment to the struggling Georgia construction industry, especially when one of the big selling points for the amendment that was passed to allow performance contracting was the creation of jobs in the construction sector.

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Last year, Georgia enacted a statute allowing state agencies to enter into energy savings performance contracts.  The Georgia Environmental Finance Authority (GEFA), which is the agency that will oversee the procurement of performance contracts for state agencies.  According to the 2012 Georgia Energy Report that was recently released by GEFA, it has been working with advisory groups to develop rules and regulations for the program as well as standardized procurement and contract documents.

Although there have not yet been any solicitations for proposals for ESPC projects for state agencies, GEFA recently announced the ESCOs that have been pre-qualified to compete for future performance contracting projects.  The prequalified ESCOs are: AECOM, Chevron Energy Solutions, ConEdison Solutions, Constellation Energy, Eaton-EMC, Energy Systems Group, Honeywell, Johnson Controls, Linc Mechanical, NEXTera Energy Solutions, Noresco, Pepco Energy Services, Schneider Electric, Siemens and Trane. Additionally, GEFA has posted samples of its proposed Investment Grade Energy Audit Agreement and Energy Savings Performance Contract forms on its website.

According to the 2012 Energy Report, GEFA expects that performance contracting will help product 11,000 direct and indirect jobs and will ultimately help to reduce the state’s energy bills by up to 20 percent. In this month’s issue of the Construction Specifier (pg. 12), I have written an article about the benefits of ESPCs for both public agencies and contractors, particularly in a bad economy.  Hopefully, we’ll start to see some of these benefits in Georgia as the new performance contracting projects are initiated.

A new law went into effect on January 1, 2011 allowing state agencies to enter into performance contracts.  While this type of contracting is new to Georgia, it is has been in use by the federal government and many other states for many years.  Georgia’s law has some unique features that are different from other states’ laws, and in the next few weeks I’ll be explaining the new law and posting updates about GEFA’s progress in finalizing the details for implementation of the new law.

This week, I participated in what I hope will be the first of several workshops for state agencies about performance contracting.  The workshop was really an introduction to performance contracting–I would liken it to a “Performance Contracting 101.”   Performance contracts are not like traditional construction contracts or service agreements, and the goal of the workshop was to teach public owners the nuances of performance contracts and to make them comfortable with the process.

Here is a rundown of the workshop:

Richard Stogner,  C.O.O. of DeKalb County: Richard gave opening remarks as the host of the workshop and shared his experience in having overseen the first major county-wide performance contracting project in Georgia.

David Godfrey, Director of Georgia Environmental Finance Authority (GEFA): David’s office is in charge of overseeing and administering the performance contracting program in Georgia.  He provided a review of important sections of the performance contracting statute and gave an update on status of implementation.

Wayne Robertson, Principal at EnergyAce: Wayne explained the fundamentals of the technical aspects of performance contracting, such as energy audits, baseline energy use calculations, and measurement and verification methods.

Peter Floyd, Partner at Alston & Bird: Peter addressed some of the statutory requirements for performance contracting, and explained some of the unique features of the financing aspects to performance contracts.

David Fisher, Director of Facilities Management of DeKalb County: David gave a detailed presentation about DeKalb County’s nearly $10 million performance contracting project, which was so successful that it has turned out to generate even more savings than had originally been projected.

My presentation focused on best practices and avoiding pitfalls of performance contracts.

It was clear from the questions and comments made by the attendants that public agencies are excited about the opportunity to use performance contracting and anxious to get started.  There will be no shortage of “potential customers” for performance contracting projects.  I suspect that the only limit will be whatever cap is established (as required by the statute) for purposes of including the financing obligations in the state budget.  (I’ll explain that in more detail in a later blog post).

If you are interested in learning more about the workshop or performance contracting, the presentations have all been posted on the website of the workshop’s sponsor, EnergyAce.