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Naval Facilities Engineering Command Management of Energy Savings Performance Contracts Needs Improvement

DODIG-2017-044

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Jan. 26, 2017 — Objective

We determined whether the Department of the Navy was effectively managing energy savings performance contracts (ESPCs). This report is the third in a series on DoD ESPCs.

ESPCs provide a way for the private sector to finance Federal Government energy-savings projects. Naval Facilities Engineering Command (NAVFAC) Expeditionary Warfare Center, Port Hueneme, California, manages the Navy ESPC program.

We reviewed all 38 ongoing performance‑phase ESPCs to determine whether NAVFAC officials appointed contracting officer’s representatives and developed quality assurance surveillance plans. In addition, we nonstatistically selected five ongoing performance-phase ESPC projects for a more detailed review to determine whether NAVFAC officials verified that the energy savings reported in the contractor’s post‑installation1 and measurement and verification reports2 are accurate, and that Government payments to the contractor do not exceed the verified savings.

Finding

NAVFAC officials did not effectively manage 38 ongoing performance-phase ESPCs, valued at $1.55 billion. Specifically, NAVFAC officials did not appoint contracting officer’s representatives for 31 of the ongoing performance-phase ESPCs and did not develop a quality assurance surveillance plan for any of the 38 ongoing performance‑phase ESPCs. As of August 1, 2016, NAVFAC officials had reduced the number of ongoing performance-phase ESPCs without an appointed contracting officer’s representative from 31 to 6 and had developed a quality assurance surveillance plan for all 38 ongoing performance-phase ESPCs.

For the five ongoing performance-phase ESPC projects reviewed in more detail, NAVFAC officials did not:

  • validate the contractor-claimed energy savings of five ESPC post‑implementation reports that supported a total of $9.3 million in contract payments,
  • validate contractor-claimed energy savings in 7 of 25 measurement and verification reports (for four of the five ESPCs reviewed) that supported a total of $39.4 million in contract payments, and
  • perform higher-level reviews for 4 of 18 base-level3 validation reports (for two of the five ESPCs reviewed) that supported a total of $19 million in contract payments.

This occurred because NAVFAC officials and base-level public works officers did not emphasize the need to have contracting officer’s representatives and quality assurance surveillance plans in place to monitor ongoing performance-phase ESPCs and did not prioritize validating the contractor’s post‑installation and measurement and verification reports.

As a result, NAVFAC officials may not know whether 38 ongoing performance-phase ESPCs, valued at $1.55 billion, fully comply with Federal Acquisition Regulation, DoD, and NAVFAC guidance. In addition, the five ongoing performance-phase ESPC projects reviewed in more detail include approximately $67.6 million in contract payments that remain questionable.

Recommendations

We recommend that the Commander, NAVFAC, direct program and contracting officials to validate and perform required reviews of $67.6 million in contract-guaranteed energy-savings payments over 16 performance periods for five ESPCs reviewed. The Commander should direct NAVFAC officials to take appropriate contractual action if necessary, such as recovering unrealized guaranteed energy savings or canceling the remaining portion of the contracts.

In addition, the Commander should direct NAVFAC officials to develop a plan to fill contracting officer’s representative vacancies; ensure that contracting officers implement quality assurance surveillance plans to monitor ongoing ESPCs; and ensure that NAVFAC Expeditionary Warfare Center and base-level personnel complete reviews of post-installation and measurement and verification validations, as well as higher-level reviews of those validations. The plan should also address the importance of resolving disputes between NAVFAC program officials and reviewers, and managing NAVFAC Expeditionary Warfare Center and base‑level public works personnel ESPC contract administration, measurement and verification validation, and quality assurance surveillance actions.

Management Comments and Our Response

The Commander, NAVFAC, addressed all specifics of the recommendations and no further comments are required. As a result of the Commander’s comments, we deleted one draft report recommendation and renumbered two other draft report recommendations in the final report.


1 The post-installation report is a contractor-submitted report that summarizes the project’s construction phase results and identifies any energy savings achieved.

2 The measurement and verification report is an annual contractor-submitted report that outlines the calculated savings achieved to date.

3 “Base-level” is used in this report to describe actions occurring at a Navy installation public works or contracting office.