Feb. 19, 2019 —
We summarized systemic problems with the contract administration of energy savings performance contracts (ESPCs) reported in eight Government Accountability Office (GAO), DoD OIG, and U.S. Army Audit Agency (USAAA) reports issued since 2013. We also determined whether DoD, Army, Navy, Air Force, and Defense Logistics Agency officials implemented the recommendations in the eight reports.
ESPCs provide a way for the private sector to finance Federal Government energy‑saving projects. The ESPC is a contract type through which an energy services contractor designs, finances, acquires, installs, and maintains energy‑saving equipment and systems for a Federal agency. ESPCs allow Federal agencies to procure energy savings and facility improvements with no upfront capital costs or special appropriations from Congress. Section 8287, title 42, United States Code (42 U.S.C. § 8287 ) mandates that ESPCs include an annual energy audit of contractor energy savings using measurement and verification techniques based on sound engineering and financial practices. The verification ensures that Government payments to the contractor are supported by equivalent energy savings.
Since FY 2013, the GAO, DoD OIG, and USAAA issued eight reports on the administration of the ESPCs by the DoD and the Army, Navy, Air Force, and Defense Logistics Agency (the DoD Components) and identified five systemic problems. Overall, the reports found that the Government did not know whether it received contractor‑claimed energy savings and whether the ESPC program was cost effective.
The five systemic problems were:
1. Contracting officers did not delegate contract administration responsibilities for the ESPCs to contracting officer representatives (CORs) because some DoD Component officials did not emphasize the need for CORs or did not have qualified staff to designate and perform contract administration functions.
2. Contracting officers did not develop and tailor quality assurance surveillance plans (QASPs) for the ESPCs because DoD Component officials did not:
- monitor or evaluate contracting officers to ensure that contracting officers developed QASPs, or
- emphasize the need to develop a tailored QASP specific for the ESPCs.
3. CORs and contracting officers did not review or verify annual contractor-claimed energy savings and associated Government contract payments. Instead, CORs and contracting officers relied on the contractor to self-administer and report energy savings.
4. ESPC program managers did not accumulate and use ESPC project data to determine project effectiveness. This occurred because ESPC project data was decentralized and program managers did not consistently request ESPC project data.
5. Assistant Secretary of Defense for Energy, Installations, and Environment and DoD Component ESPC program officials did not develop guidance for ESPC training, data management, contract administration, and disagreement resolution. The officials stated that they did not develop ESPC guidance because it was not their responsibility or they were not aware of ESPC statutory requirements.
The DoD took action to implement and close 62 of the 70 recommendations made by the GAO, DoD OIG, and USAAA to resolve the problems identified. The actions taken resulted in improved ESPC oversight. There are 8 resolved but open recommendations because the Assistant Secretary of Defense for Energy, Installations, and Environment, the Air Force, and the Navy continue to work on implementation results.
We reviewed the actions taken to implement six resolved but open recommendations that we made to the Navy and Air Force. We made one additional recommendation to the Commander of the Naval Facilities Engineering Command and three additional recommendations to the Assistant Secretary of the Air Force for Acquisition, Technology, and Logistics (SAF/AQ). Based on SAF/AQ comments to the draft report, we revised the three recommendations to state that the SAF/AQ should coordinate with the Air Force Civil Engineer Center Commander. If the Navy and Air Force officials agree and implement these new recommendations, it will help the Navy and Air Force close the six resolved but open recommendations from our previous audit reports.
Specifically, we recommended that the:
- Commander of Naval Facilities Engineering Command direct the Navy ESPC contracting officer to obtain information required to calculate and validate currency conversions for an ESPC in Japan.
- SAF/AQ direct Air Force ESPC contracting officers to coordinate with the Air Force Civil Engineer Center Commander to identify Air Force ESPCs not previously subject to Government validation; validate contractor-claimed energy savings; and take appropriate contractual action (if necessary) based on the result of the validation.
Management Comments and Our Response
The Commander of the Naval Facilities Engineering Command did not respond to the recommendation in the report. Therefore, the recommendation is unresolved and remains open. We request that the Navy provide comments in response to this final report.
The Associate Deputy Assistant Secretary of the Air Force for Contracting, responding for the SAF/AQ, stated that the Air Force Civil Engineer Center had the responsibility to manage, oversee, and evaluate the effectiveness of ESPCs. However, the Associate Deputy acknowledged that the SAF/AQ should assist with the annual measurement and verification process and the overall execution of the ESPC program. We agree that the Air Force Civil Engineer Center has responsibility for ESPCs. However, this is a joint responsibility between contracting officers and Air Force Civil Engineer Center officials. Contracting officers are ultimately responsible for their contracts and reviewing and approving contractor-claimed energy savings is a contractual responsibly. Furthermore, the SAF/AQ can direct the actions of Air Force contracting officers. Therefore, we revised the recommendations to the SAF/AQ to recommend that the SAF/AQ coordinate with the Air Force Civil Engineer Center Commander. The recommendations are unresolved and remain open. We request that the SAF/AQ comment on the final report.
The Associate Deputy also agreed to take contractual action to implement the conclusions from the validation process. The Associate Deputy further stated that the SAF/AQ will inform the contracting officials of the systemic issues identified in this DoD OIG report. Therefore, this recommendation is resolved but open.
This report is a result of Project No. D2018-D000RK-0121.000