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Performance-Based Procurement: Infusing Your Design-Build Contract with Energy Requirements

July 14, 2016 by · Leave a Comment      Print Page Print Page

By Matt Baker

Innovation is a crucial part of the green building movement. Year after year, renewables come down in price, mechanical systems become more efficient and the stock of sustainably sourced materials grows more diverse. Without these technological advancements, the share of the construction sector devoted to sustainability would likely equal that of yak skin yurts.

So, what if you apply that innovative thinking to other aspects of the design-build environment? That’s the idea behind a new trend: performance-based procurement. First developed by the Colorado-based National Renewable Energy Laboratory, performance-based procurement is an approach that sets into motion higher energy efficiency in a building before a shovel ever meets dirt.

Using this model, when an owner puts out a request for proposal (RFP), a specific energy benchmark is included along with standard requirements like cost and timeframe. Traditionally, energy performance is discussed only after the design team is under contract. By setting a measurable energy goal at the beginning of a project, operational efficiency ceases to be a tertiary concern and enters the conversation much earlier.

One encumbrance to sustainability in new buildings is return on investment; regardless of how a structure is designed to perform, there are few guarantees. If the systems aren’t performing as promised, that’s a lost investment from the owner’s perspective. By setting a target early and measuring the building’s operations after completion, performance-based procurement removes that risk.

“I think teams will get creative. If they want to win the work badly enough, they’ll find a way to get it within the budget and they’ll have to make trade-offs elsewhere. If the owner truly cares about energy, this is the way to elevate it in a way that is meaningful.”

This new contract method also helps apprehensive owners who want to be more proactive about their building’s energy use, but don’t know how to start. “One of the biggest benefits the program can provide is to help the owners, a lot of whom don’t fully understand energy analysis or where to set a goal,” said Adam McMillen, Director of Energy Consulting for Seventhwave. “It’s a great place for the program to help the owners up front.”

Last year, Seventhwave partnered with the U.S. Department of Energy (DOE), NREL and the Institute for Sustainable Energy at Eastern Connecticut State on a new program, Accelerate Performance. The $2 million program—funded by the DOE and various utilities—is designed to tap into the commercial building sector’s energy savings potential by increasing owner demand for higher performing, cost-competitive construction. The keystone in this program is performance-based procurement.

“Buildings account for almost 40% of national CO2 emissions. By the year 2035, 75% of the built environment will be either new or renovated,” said Dave Vigliotta, Director of Marketing and Strategic Partnerships at Seventhwave. “Putting these tools in place in the market and scaling them creates a huge opportunity to mitigate future climate and energy impacts.”

The Basics of Performance-Based Procurement

The first step in performance-based procurement is the same as when crafting a traditional RFP: set a firm price. But these contracts should bind to that a specific energy target. Here there is flexibility, dependent on the owner’s needs. A common metric is energy use intensity, or EUI. Some projects call for absolute energy use or independent utility consumption. Rather than stating that the building is modeled to be a certain percentage more efficient than an ASHRAE standard or a building code, setting a more granular target ahead of time lets the owner know that they will end up with a structure that performs as they intended.

That’s not to say that a performance-based RFP should have an all-or-nothing goal. By including tiered targets, the owner will receive more bids with greater diversity. The performance-based language in the contract ideally would include mission critical goals, followed by highly desirable goals that would contribute to the project’s success and finally, a top-tier, highly beneficial target. The mission critical level should be achievable within the budget with the next two tiers containing desirable features that a savvy design team can implement. In the end, the winning bidder will likely be the team who has found a way to creatively reach beyond the mission critical elements.

“I think teams will get creative. If they want to win the work badly enough, they’ll find a way to get it within the budget and they’ll have to make trade-offs elsewhere,” said McMillen. “If the owner truly cares about energy, this is the way to elevate it in a way that is meaningful.”

Once construction is under way, the owner and the design-build team will review the energy analysis throughout the project. Whenever budget and timeline come up in discussions, energy performance likely will as well. The RFP will also include a predefined period when the owner and designers will measure the building’s actual energy performance, likely 12 to 18 months after project completion.

This final energy assessment completes the cycle, delivering to the owner a building that operates just as outlined in the original RFP. It also provides a point of accountability. Traditional contracts often have incentives built in if the contractor completes construction ahead of schedule. The same concept applies to performance-based procurement, as the contract may include a financial bonus to the design-build team for hitting the agreed-upon energy target.

It’s up to the owner if and how they want to keep the designers accountable. Some may hold a retainage against hitting the target, or they might include a bonus. For Chicago-area developers, one possible financial source to fund these bonuses has been around for a few years: ComEd’s Smart Ideas New Construction Service.

“ComEd offers one of the country’s largest and most cost effective energy efficiency portfolios and is committed to helping customers manage their energy,” said George Malek, Energy Efficiency Director at ComEd. “As codes become more stringent, we need to provide our customers with creative options to get deeper saving commitments.”

Added Vigliotta, “ComEd was the first utility in the country to sign up to this initiative because they were seeking cost effective programs that uncover deep savings. They see this pilot as an opportunity to drive market transformational change.”

Case Study: University of Chicago

Seventhwave has worked with the University of Chicago for four years on their campus master plan. The university has had to balance the many 120-year-old buildings with new construction coming online. “Based on their experience, [the University of Chicago] would work really hard on investing every year in retrofitting these old buildings and bring the energy use down, and then a new one would come on line and it might not perform the way they expected it to,” said Vigliotta. “They felt that they might be losing a lot of that investment and savings.”

ProcurementSo their latest project, the 390,000 square foot Campus North Residence Hall, will be their first to set a contractual performance goal. They decided to use the EUI metric—calculated as energy per square foot per year—and wrote the RFP to include a minimum site EUI at 65 kBtu/ft2. For reference, the national median for college dormitories using Energy Star’s Portfolio Manager is 74 kBtu/ft2.

Fluctuations were built into the University of Chicago RFP. For one, the target EUI could increase or decrease based on the capacity and size of a proposed design to allow the design team some flexibility if they proved efficient in their space planning. Alternately, the EUI would shrink by ten if a proposed design made use of on-site boilers in lieu of campus steam, or if the design included a geothermal system.

These tiered targets not only gave the university a better shot at obtaining high performing designs, it alleviated their concerns of receiving multiple proposals that were architecturally similar. In the end, four bids came in; each was unique and all had an EUI of 55 kBtu/ft2 or less.

The winning design was created by Studio Gang and the complex is now under construction, slated to open this fall. One year after the doors open, the university and the design team will analyze the building’s performance and see if it matches what was agreed upon in the contract. Ideally, the completed building will perform much closer to expectations than a traditional energy model could forecast.

“This really empowers the owner to get the most out of their investment. If you’re paying for this energy efficiency and expecting a certain level of energy performance, but you don’t have anything baked into the contract, then how can you get that verified at the end?” said Vigliotta. “I think it’s going to be a much more common practice down the road as buildings become more advanced.”

Image: Tom Harris/Studio Gang

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