For most construction projects, it is common to include contingencies in the contract to cover any costs that may arise outside of the project’s anticipated scope. Such is the case if a necessary component is not fully described or is overlooked in the original drafting stage. When such an instance arises, the contractor will request a change order that subsequently adjusts the overall price of the project. Based on this sort of process, a grantee sent in a question regarding how to apply a change order in the context of an energy savings performance contract.

Should we allow change orders that the Energy Service Company (ESCO) initiates in the Energy Savings Performance Contract (ESPC)?

Before agreeing to an ESPC, it is important to discuss certain considerations with the ESCO to develop appropriate pricing. Although contingencies may be typical in normal construction situations, this is not the case with an ESPC. The ESCO is responsible for performing the audit, and as part of this assessment, it should be clear on what all needs to be included in a project.

To avoid claims of oversight and incompleteness, stipulate in the Request for Proposal (RFP) that the ESCO needs to perform adequate due diligence throughout the entire audit phase. This will help eliminate any areas of uncertainty at the project’s outset. Because an ESPC is a fixed-price contract, clearly specify in both the RFP and the contract that ESCO-initiated change orders will not be considered.

If you have additional questions regarding contingencies, change orders, or anything else related to ESPCs, please submit a comment to this post or contact a Technical Assistance Provider.

Content for this Blog post courtesy of Sentech-SRA/ICF International