Spread the Risk, Boost Results (March 2000)
Many are finding that the solution, overall re-engineering and recommissioning of the system, can be implemented using a performance service provider (PSP). This approach offers the guaranteed maximum pricing, savings, and return on investment needed to justify the capital expense.
This was the case for a major telecommunications company, which recently used a PSP to manage the assessment, upgrades, rebalancing, and recommissioning of the mechanical system in a 160,000-sq-ft central switching facility. The project, which included energy management and control systems, electronic variable frequency drives, high-efficiency motors, economizer retrofits, central plant upgrades, and commissioning and balancing services, saved 32% in energy costs with a 2.5-year payback on its capital investment.
A Financial Stake in ResultsPerformance contracting arose from energy conservation initiatives in the 1970s to enable owners to pay for energy retrofits through guaranteed savings or a monthly fee. Over the years, the applications of performance contracting have broadened. Having a financial stake in the game is what sets the true performance service provider apart from the players in a typical contracting arrangement for a facilities improvement project.
Traditionally, the owner might hire a consultant to be his/her representative; an architect/engineer to produce the design and construction documents; and then a general contractor, through a competitive bid process, to purchase the materials and carry out the construction. In contrast, the performance service process can identify opportunities for increasing operating efficiencies and savings that will often improve the facility’s systems, upgrade infrastructure, and streamline operating processes through a partnership with a professional who has a financial stake in the results.
The project may be funded either from a monthly fee or through guaranteed savings. The PSP can supply the capital equipment, the maintenance, and sometimes the financing itself, guaranteeing a certain savings over a period of time.
There are many options for financing a performance contract. A finance lease is owner-secured financing in the form of an equipment lease, in which the customer owns the equipment and all applicable tax credits; guaranteed lease is a variation of the finance lease, in which the PSP guarantees the operating cost savings will be less than the annual lease amount for the term of the lease; an operating lease, is where the customer receives the benefit of facility improvements in the form of an operating lease; in shared cost savings, the PSP finances facility improvements and maintains and operates these improvements over the term of the contract in exchange for a percent of the annual savings; and tax-exempt finance lease, which provides lower-cost financing for non-federal public agencies by utilizing their tax-exempt status.
Re-Engineering the Mechanical SystemThe project mentioned above illustrates how a performance contract can be developed and carried out. One of the telecommunications company’s main switch operation centers, a 40-year-old facility, combined office, maintenance, and switch equipment. The original switch environment comprised 80% of the facility at a time when everything was wired on racks. New, high-speed electronic switches, such as the state-of-the-art 5ESS switch in use at the center, can handle a tremendous amount of traffic, but they are much smaller, very heat intensive, and sensitive to the environment.
When a new switch was added, the owner and facilities engineers carved out a small section of the existing environment and dropped it in, providing engineering for the new switch, but not for its impact on the whole mechanical system. Over time, many changes were implemented, including 100% backup power, but the central plant was never re-engineered for the change in loads. The primary air-handling units were never rebalanced for the overall changes to the facility. Among the resultant problems were aging motors, improper air balance, inadequate pressure and temperature controls, and service/repair costs of $50,000-60,000 a year.
The owner was prepared to finance the project, and sought a PSP that could provide guaranteed maximum pricing and savings. EMCOR’s savings projections met the owner’s internal benchmark for capital investment of a 2.5-year payback, guaranteeing the owner a 32% return on its $168,000 investment.
Improvements and UpgradesThe two-phase contract was carried out over 24 months. The first phase involved energy studies and utility negotiations; phase two provided design-build construction services, commissioning, and verification of utility cost savings.
EMCOR worked closely with the owner’s preferred providers, including the mechanical engineer, who was responsible for performing as-built load calculations, providing equipment safety factors and redundancy criteria, and providing technical oversight of the balancing of the air handling system.
The project involved a number of improvements and upgrades to the mechanical system.
Chiller plant and distribution upgrades included a chiller plant optimization control system, with direct digital control (ddc) of compressor staging capacity; modification of chilled water pumps for lead/lag control; and integration of chiller plant start/stop with critical switchgear monitoring.
Improvements to the air handling system included the retrofit of constant volume air handling units with variable frequency drives (vfd), including installation of precision differential pressure sensors and automatic bypass contactors to provide fail-over in the event of vfd fault; modification of terminal units for variable air volume operation; and installation of economizer controls.
Energy management control systems upgrades included expansion of the existing Andover ddc system to control and monitor approximately 320 points with improved schedule control, optimal start/stop, reset optimization, setback/setup temperature control, and fan/pump sequencing control; installation of carbon dioxide indoor air quality sensors for minimum positioning control of outside air dampers in intermittently occupied spaces; a critical alarm monitoring system; and 24-hour service support with guaranteed 15-min response to critical alarms.
Motor upgrades included installation of 32 premium efficiency motors, with change-out of critical supply air fan motors serving the telecommunications switches; these were performed under phased schedule. Recommissioning services included rebalancing air and water systems based on as-built hvac load calculations.
Upgrades to operations and maintenance included repair of economizer dampers; repair/replacement of temperature control valves; and replacement of fan motor belts.
The ResultsChiller upgrades resulted in improved operating efficiency, reducing chiller operation from three to one for the majority of the year. Air-handling system improvements resulted in the correction of longstanding pressure control problems and an improvement in site power factor without measurable increase in total harmonic distortion.
Recommissioning corrected a number of temperature and flow problems in the facility and resulted in upgrading one critical air-handling unit serving the 5ESS switch, eliminating high-temperature problems. In addition to dramatic improvements in efficiency and reliability, operational savings of 32% exceeded the PSP’s target.
OIS: A Comprehensive PlanIt is not only energy conservation improvements that can be funded through a performance contract, as the example illustrates. Performance contracting still focuses, to a great extent, on electromechanical systems. Theoretically, a broad array of services can be handled through performance contracting, and, as owners, engineers, and service providers become more experienced with the approach, they are likely to discover many new opportunities.
Performance contracting is also just one part of a bigger picture. For those owners seeking a comprehensive facility management plan, an effective approach is Outcome Integrated Services (OIS), a customized mix of facilities services designed to achieve optimum financial and service-level impact. The OIS team will analyze energy utilization and procurement practices, maintenance effectiveness, facilities organization, work processes, and tools to develop a comprehensive plan that improves efficiency and minimizes costs. The team may identify a number of opportunities for cost reduction and service level improvements. Each initiative is analyzed on its financial and technical merits and priorities are suggested. Among the benchmarks for the analysis are data from best-in-class operations in the owner’s industry.
The OIS approach defines the effects of any program or project in terms that are meaningful to the owner’s business, such as the effect on sales and general administration costs. The approach also recognizes that there are business needs outside the realm of simple cost reduction, including productivity, system reliability, and the need for the contractor to function within the framework of the owner’s organization, effectively extending internal resources.
Over the years, owners and facilities engineers have come to the realization that the physical plant and its associated distribution networks are a vital element in strategic and financial planning. Ensuring it remains a reliable contributor to the organization’s productivity and profitability may require anything from a specific improvement to an overall re-engineering of the system.
Performance services contracting and OIS are effective means of identifying, financing, and managing these changes through a partnership with a service provider that understands the process and shares the financial risks and rewards of the outcome.
Side Bar Selecting a service providerIn selecting a PSP, an owner or facilities engineer should look for a number of qualities. First is flexibility: The right provider will not be one that is selling a predetermined bundle of services, rather it will be one that will identify, along with the owner, the best customized mix of services to maximize value and fit the owner’s culture. This includes the ability and willingness to work with the owner’s in-house team of engineers and facilities managers, as well as outside preferred service providers and contractors. With the right mix of services identified, the PSP must have core competency in a significant majority of the service areas to ensure that the owner will get the best value.
The right experience is crucial. The PSP should have experience in the owner’s industry or closely related ones, in the technical areas targeted for improvements, and in the types of business arrangements that align motivations and allow the technical efforts to be a “win-win” both for the owner and the provider. The PSP’s culture must be a good fit with the owner’s, and the firm should be able to work within the parameters of the owner’s organization.
Finally, the PSP should demonstrate staying power. It must be a company with the financial wherewithal to weather any setbacks in the optimization plans and continue working until the results are achieved.