Public Comment — Brentwood City Council, January 14, 2025

From: David Johnsen
To: =yCouncil Members
Subject: FW: Agenda Item F.2 for 1-14-25 Meeting "Energy Conservation Contract & Schneider Bldg Americas" Date: Tuesday, January 14, 2025 2:23:09 PM
Attachments: GOV 4217.10 - 4217.18.pdf
FPPC Adv Letters GOV 4217.pdf
Item F.2 1-14-25 Agenda Packet.pdf
DOE How to Determine O&M Savings.pdf
DOJ Schneider Press Release.pdf
USDA Vs. Schneider Electric.pdf
Carl Moyer Infrastructure Grant Guidelines.pdf
CAUTION – EXTERNAL SENDER
Good Afternoon City Manager & Attorney,
Please see below email sent to the City Council yesterday concerning Agenda Item F.2. I did a little digging into the Carl Moyer BAAQMD Grant and have attached their infrastructure grant guidelines. It looks like the funding source has a competitive bidding requirement when on-site power generation is included in the scope. It is also a requirement the chargers are powered at least 50% from renewable sources so the requirement likely triggers (See Item C on the 6th page under General Criteria) Thank you,
David Johnsen
Contra Costa Compliance
P O Box 5218
Concord, CA 94524
(925) 372 0302
From: David Johnsen
Sent: Monday, January 13, 2025 2:36 PM
To: [email protected]
Cc: [email protected]; [email protected]; [email protected]; [email protected]
Subject: Agenda Item F.2 for 1-14-25 Meeting "Energy Conservation Contract & Schneider Bldg Americas"
Good Afternoon Brentwood City Council,
My name is David Johnsen. I work for Contra Costa Compliance. Contra Costa Compliance is a non-profit focused on public contract code and labor code compliance on public projects in CCC. We’re sponsored by the National Electrical Contractors Association and IBEW Local 302. I’m writing today to advise the City Council concerning agenda item F.2 on the 1-14-25 agenda and to inform you about Government Code Section 4217.10 – 4217.18 (attached).

GOV 4217 allows public agencies to circumvent competitive bidding requirements and sole source construction projects related to energy conservation if the governing body determines the anticipated future cost to the public agency for thermal, electrical, or other energy will be offset by doing the project and the associated savings will pay for the cost of the project over time (GOV 4217.12(a)(1)). There are three legal issues concerning Item F.2 I would like to bring to your attention.

The first is the proposed structure of the contract. Specifically, the “Turnkey” solution proposed. Under this structure, the Contractor (Schneider Building Americas Inc.) will act as both the Engineer / Designer and the Contractor. The Fair Political Practices Commission has issued two advice letters in response to requests from both The City of Concord and The City of Pleasanton (See Attached FPPC Advice Letters) concerning this practice. Both Cities asked the FPPC to weigh in on whether having the same entity act as the Engineer / Designer and Construction Contractor for a GOV 4217 contract would be a violation of conflict-of-interest provisions under GOV 1090. In both cases, the FPPC confirmed this was a violation. The reason why is, for the Engineer / Designer to have the exclusive best interests of the city in mind, they can’t also have a financial interest in the recommended construction contract that comes from their design effort. In essence, it is in the Contractor’s financial interest to engineer a design that increases project cost versus delivering best value. In my experience monitoring these procurement types, it is also clear Contractors are incentivized to submit savings projections that look rosier than they are in order to get projects through approval….this leads to my second issue.

The second issue has to do with the Savings Projections and a lack of a savings guarantee (See last page of F.2 1-14-25 Agenda Packet). Upon review of the savings analysis, you will notice the estimated electricity costs for the proposed EV Charger consumption is higher than the estimated costs for gallons of fuel over the 20-year timeframe. The analysis shows projected savings coming from a theoretical reduction in the costs associated with maintaining an EV fleet versus an Internal Combustion Engine (ICE) fleet. Schneider is attempting to show the project meets the requirements of GOV 4217 by qualifying the project with non-energy costs.

Their advice is that projects should be qualified through a reduction in energy costs and that if used at all, O&M savings projections should adhere to strict guidelines that can withstand scrutiny / audits from governing bodies and taxpayers (See DOE How to Determine O&M Savings).

Diablo USD is under contract with Schneider for a $50 million Energy Conservation Contract. Both the School Board and Citizens Bond Oversight Committee have been critical of that contract at several public meetings. It has also been written about recently in multiple East Bay Times Articles which have also been picked up by the Fiscal Crisis & Management Assistance Team (FCMAT) whose mission is to help California’s K-14 educational agencies identify, prevent, and resolve financial management challenges. The criticism relates to overstated savings projections, overcharging, and general underperformance. If you have an East Bay Times subscription you can search for “MUDUS Schneider” and the articles will come up…….some of the articles may be free without a subscription.

My recommendation for you is to instruct Staff to go back to the drawing board and issue a RFP for Engineering services to develop plans for a project which can be competitively bid, or issue a RFP for a design-build contract. This would invite more competition, and bring forward more transparency regarding scope, savings, and cost prior to contract signing. If you instead decide to move forward and award a GOV 4217 contract, please know you will be heading into a project with a questionable legal structure based upon a very shaky savings analysis.

Please feel free to reach out to me at 925-372-0302 or
[email protected] if you would like to discuss further. I have years of experience evaluating this particular contract type.

Thank you and Best Regards,
David Johnsen
Contra Costa Compliance
P O Box 5218
Concord, CA 94524
(925) 372 0302
From: Wisinski, Katherine
To: McVey, Amanda
Cc: Ogden, Tim
Subject: FW: Agenda Item F.2 for 1-14-25 Meeting "Energy Conservation Contract & Schneider Bldg Americas" Date: Tuesday, January 14, 2025 2:32:16 PM
Attachments: GOV 4217.10 - 4217.18.pdf
FPPC Adv Letters GOV 4217.pdf
Item F.2 1-14-25 Agenda Packet.pdf
DOE How to Determine O&M Savings.pdf
DOJ Schneider Press Release.pdf
USDA Vs. Schneider Electric.pdf
Carl Moyer Infrastructure Grant Guidelines.pdf
Amanda,
Another email for inclusion with posted public comments to the Council for tonight’s meeting.

Katy
From: David Johnsen <[email protected]> Sent: Tuesday, January 14, 2025 2:22 PM
To: =yCouncil Members <[email protected]>
Subject: FW: Agenda Item F.2 for 1-14-25 Meeting "Energy Conservation Contract & Schneider Bldg Americas"
CAUTION – EXTERNAL SENDER
Good Afternoon City Manager & Attorney,
Please see below email sent to the City Council yesterday concerning Agenda Item F.2. I did a little digging into the Carl Moyer BAAQMD Grant and have attached their infrastructure grant guidelines. It looks like the funding source has a competitive bidding requirement when on-site power generation is included in the scope. It is also a requirement the chargers are powered at least 50% from renewable sources so the requirement likely triggers (See Item C on the 6th page under General Criteria)
Thank you,
David Johnsen
Contra Costa Compliance
P O Box 5218
Concord, CA 94524
(925) 372 0302
From: David Johnsen
Sent: Monday, January 13, 2025 2:36 PM
To: [email protected]
Cc: [email protected]; [email protected]; [email protected]; [email protected]
Subject: Agenda Item F.2 for 1-14-25 Meeting "Energy Conservation Contract & Schneider Bldg Americas"
Good Afternoon Brentwood City Council,
My name is David Johnsen. I work for Contra Costa Compliance. Contra Costa Compliance is a non-profit focused on public contract code and labor code compliance on public projects in CCC. We’re sponsored by the National Electrical Contractors Association and IBEW Local 302. I’m writing today to advise the City Council concerning agenda item F.2 on the 1-14-25 agenda and to inform you about Government Code Section 4217.10 – 4217.18 (attached).

Please review GOV 4217.12(a)(1) – which states savings must come from a reduction in energy costs. Several federal and state energy departments have issued advice related to the topic of Operating and Maintenance (O&M) savings projections. Their advice is that projects should be qualified through a reduction in energy costs and that if used at all, O&M savings projections should adhere to strict guidelines that can withstand scrutiny / audits from governing bodies and taxpayers (See DOE How to Determine O&M Savings).

The last issue is Schneider’s track record as an Energy Services Contractor. They have been involved in multiple lawsuits concerning their Energy Contracting Business and have plead guilty to civil and criminal probes involving kickbacks, and inflated costs / savings projections with Government Agencies in California (See DOJ Press Release & USDA Vs. Schneider Attachments). Currently in Contra Costa County, Mt. Diablo USD is under contract with Schneider for a $50 million Energy Conservation Contract. Both the School Board and Citizens Bond Oversight Committee have been critical of that contract at several public meetings. It has also been written about recently in multiple East Bay Times Articles which have also been picked up by the Fiscal Crisis & Management Assistance Team (FCMAT) whose mission is to help California’s K-14 educational agencies identify, prevent, and resolve financial management challenges. The criticism relates to overstated savings projections, overcharging, and general underperformance. If you have an East Bay Times subscription you can search for “MUDUS Schneider” and the articles will come up…….some of the articles may be free without a subscription.

Please feel free to reach out to me at 925-372-0302 or [email protected] if you would like to discuss further. I have years of experience evaluating this particular contract type.

Thank you and Best Regards,
David Johnsen
Contra Costa Compliance
P O Box 5218
Concord, CA 94524
(925) 372 0302
CHAPTER 10: INFRASTRUCTURE
Table of Contents
I. Guidance ................................................................................................................................ 10-2 A. Funding ............................................................................................................................. 10-2 B. Eligible Projects ................................................................................................................ 10-3 C. Eligible Applicants ........................................................................................................... 10-4 D. Eligible Costs .................................................................................................................... 10-4 E. Ineligible Costs ................................................................................................................. 10-5 F. Project Eligibility Criteria.................................................................................................. 10-5 G. Applicant Requirements ................................................................................................. 10-8 H. Project Life......................................................................................................................... 10-9 I. Contract Requirements ..................................................................................................... 10-9 J. Pre-Inspection.................................................................................................................. 10-10 K. Post-Inspection................................................................................................................ 10-11 L. Invoice and Payment....................................................................................................... 10-11 M. Data Collection and Annual Reporting....................................................................... 10-11 II. Acronyms ............................................................................................................................. 10-12 III. Definitions........................................................................................................................... 10-14 IV. References .......................................................................................................................... 10-19 10/24/2024 10-1 INFRASTRUCTURE
I. Guidance
Senate Bill (SB) 513 (Beall, Chapter 610, Statutes of 2015) provides the California Air Resources Board’s (CARB) Carl Moyer Memorial Air Quality Standards Attainment Program (Moyer Program) the ability to incorporate infrastructure projects into its program. It authorizes the funding of projects that enable the deployment of alternative, advanced, and cleaner technologies to support the State’s air quality goals. Specifically, H&SC Section 44281(c) gives CARB the ability to provide funding toward the installation of fueling or energy infrastructure to fuel or power covered sources.

While CARB may provide funding for infrastructure projects, the California Energy Commission (CEC) is the lead agency for zero-emission vehicle (ZEV) infrastructure funding and station planning, and the California Public Utilities Commission (CPUC) oversees the state’s public utility companies to ensure safe and reliable energy service, including for ZEV infrastructure. Statute does not require infrastructure projects to meet a cost-effectiveness threshold.

This chapter provides project criteria for selecting and funding infrastructure projects that enable emission reductions in meeting State and local air quality goals. All infrastructure projects must be used to fuel or power a covered source as defined by Health and Safety Code Section (H&SC) 44275(a)(7). These covered sources include, but are not limited to, on-road (including passenger and commercial light-duty, medium-duty and heavy-duty vehicles), off-road, locomotive, agricultural, and marine vessel emission sources.

Please note that to fund projects in this category, Chapters 2 and 3 include general provisions and administrative requirements. Appendices A-E provide additional supporting information.

A. Funding
Air quality management districts or air pollution control districts (air districts) determine project priority and select projects to be funded within their region.

Table 10-1
Funding Percentage of Eligible Cost for Moyer Program Infrastructure Projects Funding Percentage of
Eligible Cost Infrastructure Projects
60% Baseline for all Projects
100% Public School Bus Projects
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Table 10-2
Additional Incentive (Plus Up) of Eligible Cost for Moyer Program Infrastructure Projects
Additional
Funding
Amount(1)
Infrastructure Projects(2)
+10% Additional incentive for projects with renewable solar or wind power systems(3)
+10% Additional incentive for projects located near sensitive receptors. +10% Additional incentive for applicants of heavy-duty truck parking facilities that provide communal charging opportunities (e.g., truck yards, truck depots, truck stops, etc.)
+15% Additional incentive for publicly accessible projects or where the applicant is a public entity
(1) Additional funding amounts in this table may be combined. Funding amount cannot exceed 100%. (2) Portable power projects will not be eligible for additional funding amounts. (3) At least 50% of the total annual energy provided to covered sources by the project must be generated from solar/wind. Hydrogen stations dispensing hydrogen produced from at least 50% renewable energy also qualifies. Solar and wind systems should be appropriately sized to ensure that the annual energy generation does not exceed 100% of the consumption by the covered source.

B. Eligible Projects
Eligible projects are those that provide fuel or power to covered sources which include on-road (i.e., passenger and commercial light-duty, medium-duty, and heavy-duty vehicles), off-road, locomotive, agricultural, lawn & garden, and marine vessel infrastructure.

1. Battery Charging Station. New, conversion of existing stations, and expansion to existing battery charging stations. Refer to Section III of this document and Appendix B for definitions to the terms mentioned above (e.g., new, conversion of existing, and expansion of existing).

2. Hydrogen Fueling Station. New, conversion of existing stations, and expansion to existing hydrogen fueling stations.

3. Stationary Agricultural Pump Electrification. Agricultural pump projects must refer to the FARMER Program Guidelines for eligibility in the Moyer Program.

4. Shore Power. Shore-side electrification or electrical power being provided by either the local utility or by distributed generation to a watercraft at berth.

5. Portable Power. Infrastructure that can be transported to power covered sources, 10/24/2024 10-3 INFRASTRUCTURE
such as, but not limited to, portable fuel cell configurations or high-capacity battery energy storage systems (1kWh and above) with the primary purpose of powering or charging covered sources.

6. Other Types or Combination with Above. Transport refrigeration units (TRU) infrastructure, truck stop electrification, off-grid on-site power generation systems, micro-grid, mobile refuelers, and portable infrastructure.

7. Additional projects may be considered on a case-by-case basis. Any project that produces emissions (e.g., innovative near zero-emission technologies) must be approved by CARB on a case-by-case basis. Please contact CARB Moyer staff for further guidance on these case-by-case projects.

To be eligible to partner with other funding sources or programs, the project must not have begun construction, must not be completed, nor invoiced and paid. Ongoing projects may only be considered for co-funding if project size increased from the original size and budget. The air district must evaluate the co-funded project prior to approval and verify the co-funded project meets all requirements of the Moyer Program.

C. Eligible Applicants
Public and private entities are eligible to apply unless otherwise stated. Public entities include, but are not limited to, state, metropolitan, county, city, multi-county special district (e.g., water district), school district, university, and federal agencies and organizations. Private entities include, but are not limited to, private organizations, and corporations. Out of State applicants are eligible to apply provided that the infrastructure is situated in California. Air districts or other entities receiving administration funding through the program are not eligible.

D. Eligible Costs
Eligible costs are limited to the purchase and installation of the equipment for power delivery or fueling directly related to the infrastructure project. The eligible costs listed below must utilize commercially available technologies. Eligible project costs include:

1. Cost of design and engineering, (i.e., consulting, labor, site preparation, Americans with Disabilities Act accessibility, signage),

2. Cost of equipment (e.g., charging/fueling units, electrical parts, energy storage equipment, materials),

3. Cost of installation is directly related to the construction of the station,

4. Meter/data loggers,

5. On-site power generation system that fuels or powers covered sources (i.e., solar and wind power generation equipment),

6. License fees, environmental fees, commissioning fees (safety testing), and on-site required safety equipment, and
10/24/2024 10-4 INFRASTRUCTURE

7. Select fees may also be incurred pre-contract execution (i.e., permits, inspections, design, engineering, site preparation). Applicants may order or make down payment on infrastructure equipment prior to contract execution, but only after air district approval. The air district must provide the potential grantee written notification that any work performed is not guaranteed funding until a contract is executed.

E. Ineligible Costs
Ineligible costs include but are not limited to:

1. Existing station upgrade. See definition in Appendix B,

2. Fuel and energy costs,

3. Nonessential equipment hardware,

4. Operation cost (e.g., operational fees, maintenance, repairs, improvements, spare parts),

5. Insurance,

6. Grantee administration costs, work performed, or self-reimbursement,

7. Travel/lodging,

8. Employee salaries,

9. Legal fees,

10.Real estate property purchases/leases,

11.Performance bond costs,

12.Construction management,

13.Storm water plan costs,

14.Security costs,

15.Testing and soil sampling, and

16.Hazardous materials, including permitting, handling, and disposal.

F. Project Eligibility Criteria
The minimum qualifications for infrastructure projects are listed below. All projects must also conform to the requirements in Chapter 2: General Criteria, and in Chapter 3: Program Administration. Participating air districts retain the authority to impose additional requirements to address local concerns.

1. General Criteria
(A) The project must be located in California.
(B) The project must comply with all applicable federal, State, local laws and requirements including environmental laws, and State building, environmental 10/24/2024 10-5 INFRASTRUCTURE
and fire codes. For instance, air districts or applicants may need to perform CEQA review and obtain approval prior to funding a project. (C) All infrastructure projects that include on-site power generation (e.g., solar, wind) and/or are publicly accessible, must be selected through competitive bidding. In cases where this requirement cannot be met, the air district must provide a written justification to CARB. For public school districts, their existing competitive bidding process fulfills the competitive bidding requirement.

Similarly, public entities with an existing competitive bidding process also meet the competitive bidding requirement. See the competitive bidding process definition in Appendix B. A competitive bidding process is not necessary for portable power projects unless there is a labor or installation project component for the equipment to perform the required job function. (D) Work must be performed by contractors and/or electricians that meet all required licensing, certification, and statutory requirements for the eligible project type (e.g., Assembly Bill (AB) 841(Ting, Chapter 372, Statutes of 2020)).

CARB may request proof of compliance with any licensing, certification, and statutory requirements before performing any work on an eligible project. (E) For projects that contain Moyer Program funding for both infrastructure and engine replacement or repower within the same contract, only the cost of the engine replacement or repower will be considered when performing a cost-effectiveness calculation.
(F) Publicly accessible stations should be accessible to the public 24 hours a day or as many hours as allowed by local ordinance. Publicly accessible stations with restricted access such as gated facilities must be accessible to the public during their regular business hours.
(G) Publicly accessible stations must provide equal access and opportunities to all users.
(H) Equipment and parts must be new. Remanufactured or refurbished equipment and parts are not eligible.
(I) Low Carbon Fuel Standard (LCFS) credit generation associated with eligible activities is not prohibited by the Moyer statute.
(J) All infrastructure projects must be surplus to any applicable rule or regulation.

Funded projects must not be required by any federal, State, or local rule or regulation.

2. Battery Charging Station
(A) On-road publicly accessible charging stations must use a valid and universally accepted charge connector protocol (e.g., Society of Automotive Engineers (SAE) J1772, Combined Charging System (CCS), North American Charging Standard (NACS), SAE J3271).
10/24/2024 10-6 INFRASTRUCTURE
(B) Equipment must be certified, or field evaluation labeled by a Nationally Recognized Testing Laboratory (e.g., Underwriter’s Laboratories, Intertek) located at OSHA's Nationally Recognized Testing Laboratory (NRTL) Program. (C) Equipment must have a warranty that covers both parts and labor for at least one year.

3. Stationary Agricultural Pump Electrification
(A) Infrastructure must directly deliver power to a zero-emission stationary agricultural pump funded by the air district with FARMER Program Guidelines (see FARMER Program Guidelines for specific criteria related to funding agricultural pumps).
(B) Covers all necessary equipment required to deliver power on the customer’s side, typically from the utility pole forward to the electric motor.

4. Shore Power
(A) For shore-side projects that service ocean-going vessels, funding is available to install shore-side electrical grid-based power at a berth that solely receives visits from vessels not subject to the control requirements of CARB’s Control Measure for Ocean-Going Vessels at Berth (Title 17, California Code Regs, sections 93130 through 93130.22). If it can be demonstrated that the project meets and is surplus to the regulatory requirements for vessels subject to control requirements, funding may be considered on a case-by-case basis. (B) Shore-side projects that service commercial harbor craft, the project must meet and be surplus to the regulatory requirements of CARB’s Commercial Harbor Craft Regulation (Title 17, California Code Regs, Section 93118.5).

5. Hydrogen Fueling Station
(A) On-road publicly accessible stations must use standard filling pressures, H35 (350 bar) or H70 (700 bar).
(B) Equipment must have a warranty that covers both parts and labor for at least one year.
(C) The hydrogen fueling stations must be in compliance with the required standards for hydrogen storage, fueling protocol, nozzle hardware, fuel quality, and communications (e.g. SAE International standards and American National Standards Institute (ANSI)), the required safety and security standards such as National Fire Protection Association (NFPA) 2.

6. Portable Power
(A) A portable power project must use equipment whose primary function is to power or charge a covered source.
(B) The infrastructure project and equipment utilizing it must be zero-emission. 10/24/2024 10-7 INFRASTRUCTURE
(C) The factory-installed or supplied batteries (i.e., OEM batteries) that are standard for specific covered equipment or vehicles are not eligible for funding under the infrastructure chapter. However, other source category chapters may provide funding for these equipment or vehicle batteries. (D) Electric vehicles, whose primary function is not to power or charge a covered source, are not eligible for funding.

G. Applicant Requirements

1. General Criteria
(A) The applicant must be in compliance with all federal, State, and local air quality rules and regulations at time of application submittal and does not have any outstanding or pending enforcement actions.
(B) The applicant must be able to demonstrate to the air district that the applicant can obtain all required land use permits from agencies needed to install and operate the station.
(C) For a publicly accessible station, the applicant must provide a description of the geographic location, including an aerial map (i.e., satellite view from an internet-based map or city/county map) and specific street address or GPS coordinates of the proposed station.
(D) Applicants must demonstrate that they either own the land on which the project will be located, or control it through a long-term lease, easement, or other legal arrangement, for the duration of the project life. For a proposed project where the land is not owned by the applicant, an executed lease agreement or letters of commitment lasting for the duration of the project life must be signed by property owners/authorized representatives and must be submitted with the application.
(E) Applicants must provide documentation that power or fuel is being or will be provided to the site in a timely manner to meet project milestones and deadlines (e.g., application, payment to the local utility company for power installation, or contract).

2. Shore Power
(A) For shore-side projects that service ocean-going vessels, applicants who own/operate at a terminal must submit a copy of the Initial Terminal Plan per Section 93130.14 of the Control Measure for Ocean-Going Vessels at Berth (Title 17, California Code Regs, sections 93130 through 93130.22). All subsequent project reports to air districts must include a copy of the terminal plan in order to evaluate compliance with the project contract. (B) For ocean-going vessel projects, only a port authority, terminal operator, or marine vessel owner may apply to receive Moyer Program funding for a shore power project.
10/24/2024 10-8 INFRASTRUCTURE
(C) For commercial harbor craft projects, only a port authority, terminal operator, owner of a marina or dock, or vessel owner may apply to receive Moyer Program funding for a shore power project.

H. Project Life

1. All projects must have a minimum project life of three years, except where a rule, regulation, or law requires a longer project life (e.g. AB 2061 (Ting, Chapter 345, Statutes of 2022)).

2. Maximum project life is 15 years, except stationary agricultural pump electrification projects which have a maximum project life of ten years.

I. Contract Requirements

1. General Criteria
(A) Contracts must include anticipated usage in terms of projected throughput and an estimate of the number of vehicles, equipment, or vessels that may be using the station for the term of the contract.
(B) Contracts must require that the equipment be in operating condition throughout the contract term.
(C) Contracts must specify that infrastructure projects must maintain a 95 percent uptime with 24/7 customer service available on site, via toll free telephone number. Contracts must also specify that if equipment is not functional, the grantee is responsible for ensuring that repairs are made, and stations are up and running within 15 business days. The grantee must notify air districts of any downtime beyond the 15 days and work with air districts to ensure stations are operational. Depending on the project, a rule, regulation, or law may set more stringent uptime and reliability requirements (e.g. AB 2061).
(D) Contracts must specify that, if during the project life the fuel/energy meter fails for any reason, the fuel/energy meter must be repaired or replaced as soon as possible and is considered a maintenance expense, therefore not an eligible cost.
(E) Contracts must specify the maximum grant amount.
(F) Contracts must identify milestone dates including project completion, invoice, and annual reporting dates.

2. Battery Charging Station
(A) Contracts must include the number of electric vehicle supply equipment (EVSE) ports and connectors.
(B) Contracts must include that grantee must report all publicly accessible battery charging station installations to the Department of Energy Alternative Fuel Data Center.
10/24/2024 10-9 INFRASTRUCTURE
(C) Battery charging stations subject to AB 2061 (Ting, Chapter 345, Statutes of 2022) must comply with all outlined requirements, including those for uptime, reliability, availability status, and data tracking and reporting as specified by the CEC. For additional information, please find the Electric Vehicle Charging Infrastructure Reliability Reporting and Performance Standards located on the CEC’s website.

3. Hydrogen Fueling Station
For publicly accessible hydrogen fueling stations, contracts must include that grantee must register and report to the Station Operational Status System (SOSS) maintained by the Hydrogen Fuel Cell Partnership (www.h2fcp.org). In addition, the grantee must abide by the requirements of the reporting system. For additional information about the SOSS requirements, please contact the Hydrogen Fuel Cell Partnership at www.h2fcp.org.

4. Portable Power
Projects must include the make, model, and storage capacity of the portable power infrastructure.

J. Pre-Inspection

1. General Criteria
Pre-inspections must be performed for conversion and expansion projects following the requirements of Section A. below and Chapter 3: Program Administration, Section Z. Project Pre-Inspection, Subsections 1. Requirements, 3. Compliance Certification, 4.

Recordkeeping, and 5. Inspection after Contract Execution.

The pre-inspection for portable power projects only needs to verify the existence of the covered sources which the equipment will support. If the applicant does not yet own the equipment that will be supported by the portable infrastructure, it must be verified that there has been an order or contract put in place that shows the applicant will receive the equipment that will be supported prior to receiving the portable infrastructure.

Participating air districts retain the authority to impose additional requirements to address local concerns.
(A) The minimum documentation requirements that must be collected and be included in the pre-inspection form include:
(1) Name of inspector.
(2) Date of inspection.
(3) Name and contact information of land/site owner.
(4) Location (address/GPS coordinates).
(5) Photo documentation of land/site. The district must also take photos of 10/24/2024 10-10 INFRASTRUCTURE
the existing equipment. At the minimum, the photos must include equipment, product label, manufacturer name, date of manufacture, model number, and serial number.
(6) Any other information regarding the land/site needed to uniquely identify, establish eligibility, populate the Clean Air Reporting Log (CARL) dataset, and ensure contract enforceability.

K. Post-Inspection

1. General Criteria
(A) Air districts must verify and document that each infrastructure project is operational. Inspections must include verification of operation by connecting a vehicle or equipment to the charging or fueling station, or in the case of an agricultural pump or shore power project, by connecting to the electrical grid. For projects that incorporate solar or wind power, the inspection must verify that infrastructure has been installed and connected to the power generation equipment (i.e., solar panels or wind turbines). Air districts may be exempted from this requirement if the grantee does not own a vehicle/equipment, and no vehicle/equipment can reasonably be obtained for the inspection. Air districts must document such instances and obtain other types of verification that the infrastructure is capable of dispensing fuel/electricity, or in the case of an agricultural pump or shore power project, capable of being powered by the electrical grid. (B) Air district must take photos of the equipment and keep photos in the project file. At the minimum, the photos must include equipment, product label, manufacturer name, date of manufacture, model number, and serial number. For a battery charging station, also include input and output voltage and amperage.

L. Invoice and Payment
A project may be considered for final payment once the necessary infrastructure has been installed and connected to the power generation equipment (i.e., solar panels, wind turbine) and/or electricity grid and has been demonstrated to the air district that it is fully operational during a post-inspection.

M. Data Collection and Annual Reporting

1. Solar or Wind Power Generating Equipment
For infrastructure projects that incorporate solar or wind power generating equipment, the grantee must annually provide to the air district the amount of electricity generated (e.g., kilowatt-hour) from the solar or wind power generating equipment for the duration of the project life.
10/24/2024 10-11 INFRASTRUCTURE

2. Battery Charging Station
Grantee must annually provide to the air district the following data for the entire project life:
(A) Annual usage per charger or per station (e.g., kilowatt-hour). (B) Any scheduled or unscheduled downtime, including duration of downtime and causes of downtime.

3. Stationary Agricultural Pump Electrification
Grantee must annually provide to the air district the following data for the entire project life:
(A) Annual usage (e.g., kilowatt-hour) using an energy meter. (B) Episodes of electrical service interruption by the local utility company.

4. Shore Power
Grantee must annually provide to the air district the following data per berth for the entire project life:
(A) Total ship visits utilizing berth and ship visits utilizing program funded equipment.
(B) Annual usage (e.g., kilowatt-hour).
(C) Episodes of electrical service interruption by the local utility company.

5. Hydrogen Fueling Station
Grantee must annually provide to the air district the following data for the entire project life:
(A) Annual usage (e.g., kilograms, standard cubic feet). (B) Any scheduled or unscheduled downtime, including duration of downtime and causes of downtime.

6. Portable Power
Annual usage (i.e., the amount of electricity dispensed in kilowatt-hours).

II. Acronyms
Acronym Definition
AB Assembly Bill
AC Alternating Current
ACS Applicant Cost Share
ADA Americans with Disabilities Act
Ah Amp-hour
10/24/2024 10-12 INFRASTRUCTURE
Acronym Definition
CARB California Air Resources Board
CCS Combined Charging System
C/E Cost-Effectiveness
CEC California Energy Commission
Cal/EPA California Environmental Protection Agency
CARL Clean Air Reporting Log
CCR California Code of Regulations
CEQA California Environmental Quality Act
CHC Commercial Harbor Craft
CMP Carl Moyer Memorial Air Quality Standards Attainment Program
CPUC California Public Utilities Commission
DOE Department of Energy
EVITP Electric Vehicle Infrastructure Training Program
EVSE Electric Vehicle Supply Equipment
FARMER Funding Agricultural Replacement Measures for Emission Reductions
g Gram
GPS Geographic Positioning System
HD Heavy-Duty
HDT Heavy-Duty Truck
HDV Heavy-Duty Vehicle
hr Hour
H&SC Health and Safety Code
kW Kilowatt
kWh Kilowatt-hours
LCFS Low Carbon Fuel Standard
NACS North American Charging Standard
SAE Society of Automotive Engineers
SB Senate Bill
SOSS Station Operational Status System
STD Standard
TRU Transport Refrigeration Unit
U.S. EPA United States Environmental Protection Agency
V Volt
YR Year
ZEV Zero-Emission Vehicle
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III. Definitions
Air District or District: An air pollution control district or an air quality management district.

Case-by-Case Determination: A process in which local air districts may request Moyer Program staff to review and approve a project that varies from the specific requirements of these Guidelines only if such approval will not adversely affect the achievement of real, surplus, quantifiable, enforceable and cost-effective emission reductions. See Chapter 3:

Program Administration for additional information.

Competitive Bidding Process: The process by which an applicant competitively selects infrastructure projects using two or more bids, or the process by which an Air District competitively selects infrastructure projects. The Air District’s process, including selection criteria, must be outlined in the Air District solicitation, and approved by the Air District Board.

Connector: A connector is what is plugged into a vehicle to charge it. Multiple connectors and connector types (such as CHAdeMO and CCS) can be available on one EVSE port, but only one vehicle will charge at a time.

Conversion of Existing Station: Infrastructure projects in which an existing fueling station (i.e., diesel, gasoline, or natural gas) is converted to a hydrogen fueling or battery charging station.

Cost-Effectiveness: A measure of the dollars provided to a project for each ton of covered emission reduction (H&SC Section 44275(a)(4)).

Cost-Effectiveness Limit: The maximum amount of funds the Moyer Program will pay per weighted ton of emission reductions, using the methodology in Appendix C.

Covered Source: On-road vehicles, off-road nonrecreational equipment and vehicles, locomotives, marine vessels, agricultural sources of air pollution as defined in Section 39011.5 and as determined by the State Board, other categories necessary for the State and Air Districts to meet air quality goals (H&SC Section 44275(a)(7)).

DC Fast Charger: A unit for Direct-Current (DC) charging with a typical output from 50 kW or higher, using an off-board charger that connects directly to the vehicle’s battery. Also called DC Level 1 and DC Level 2.

Electric Vehicle Supply Equipment (EVSE): An electrical energy transfer device that conducts and regulates power from the electrical portal connection to the electrical vehicle inlet.

Emission Factor (EF): A category specific estimate of emissions per unit of activity. On-road emission factors are based on CARB mobile source emission inventory model values. Offroad emission factors are based on values applied in CARB category specific inventory models.

EVSE Port: An EVSE port provides power to charge only one vehicle at a time even though it may have multiple connectors. The unit that houses EVSE ports is sometimes called a charging post, which can have one or more EVSE ports.
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Executed Contract: A legally binding contract signed by the local air district Air Pollution Control Officer, or other air district designated representative, and the grantee to fund an eligible engine, equipment, or vehicle project that will reduce covered emissions. An executed contract is a program milestone in which parties agree to meet the obligations within the contract by a specified date.

Existing Station Upgrade: Improvements to a battery charging or hydrogen fueling station without increasing the output capacity.

Expansion to Existing Station: Infrastructure projects that increase the amount of fuel/energy throughput or capacity to fuel/charge equipment/vehicles at current hydrogen fueling and battery charging stations.

Expend: To make a full or partial payment of Moyer Program funds toward a project invoice for an eligible Moyer Program project.

Extended Warranty: Any warranty purchased to extend the time period for coverage in addition to the standard warranty provided by the manufacturer.

Farm Equipment: As applied to off-road engines, includes equipment used in agricultural operations as defined in the Regulation for In-Use Off-Road Diesel-Fueled Fleets (California Code of Regulations, title 13, Section 2449(c)(1)). As applied to portable and stationary engines, includes the agricultural sources defined in H&SC Section 39011.5.

Federal Funds: Awards of financial assistance to an individual or organization from the U.S. government to carry out a government-authorized purpose and not provided as personal benefits or assistance from the government.

Forklift: Electric Class 1 or 2 rider trucks or large spark-ignition engine powered Class 4, 5 or 6 rider trucks as defined by the Industrial Truck Association. Electric Class 3 trucks are not forklifts for the purposes of these Guidelines. More information can be found at the Powered Industrial Trucks (Forklift) eTool and the Industrial Truck Association website.

Freight Locomotive: A locomotive that hauls freight as its primary function.

Funding Amount: The amount of funds dedicated to a contracted project for reporting purposes in CARL; this value may never exceed the grant amount.

Funding Cap: The maximum dollar amount or maximum percentage of Moyer or State funds that may be expended on a project, as specified by source category and limited by variables that include the contribution of other incentive programs, rules, regulations, and incremental cost.

Funding Target: The total funds required to meet a program milestone such as funds executed or liquidated during a funding cycle, for purposes of cumulative tracking and reporting. Funding targets consider regular Moyer Program funds, State Reserve funds, Rural District Assistance Program funds, Moyer voucher program funds, required match funds, interest funds, reallocated funds, recaptured funds, interest and salvage revenues, and other funds associated with the Moyer Program.
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Grant Amount: Contracted amount of Moyer funds for a project, which may not exceed the maximum dollar amount or maximum percentage of eligible cost specified by source category and project type.

Harbor Craft: (also called “Commercial Harbor Craft”) Any private, commercial, government, or military marine vessel including, but not limited to, passenger ferries, excursion vessels, tugboats, ocean-going tugboats, towboats, push-boats, crew and supply vessels, work boats, pilot vessels, supply boats, fishing vessels, research vessels, United States Coast Guard vessels, hovercraft, emergency response harbor craft, and barge vessels that do not otherwise meet the definition of ocean-going vessels or recreational vessels.

Heavy-Duty Vehicles (HDV): Trucks and buses in the weight classes shown in Appendix B, Table B-1, also provided below.

Table B-1
Heavy-Duty Vehicle Classification for Moyer Program On-Road Projects Vehicle Classification GVWR
Light Heavy-Duty (LHD) 14,001 to 19,500 pounds
Medium Heavy-Duty (MHD) 19,501 to 33,000 pounds
Heavy Heavy-Duty (HHD) Over 33,000 pounds
Incremental Cost: The cost of the project less a baseline cost that would otherwise be incurred by the applicant in the normal course of business. Incremental costs may include added lease, energy, or fuel costs pursuant to H&SC Section 44283 as well as incremental capital costs.

Investor-Owned Utility: A business providing utility services such as electricity, natural gas, telephone, and water services, that is managed privately rather than as a function of a government or public cooperative. Examples are Pacific Gas and Electric, Southern California Edison, and Sempra Energy.

Lawn and Garden Equipment: Equipment used to maintain lawns and gardens. This equipment is generally, but not exclusively, powered by spark-ignition engines. This equipment is traditionally used in applications such as lawn mowers, edger’s, trimmers, leaf blowers, and chainsaws. Equipment that does not fall into this category includes golf carts, specialty vehicles, generators, pumps, and other small utility equipment.

Level 2: Electric vehicle supply equipment for connection to an on-board vehicle charging system, with 208V–240V alternating-current (AC) charging up to 80 amps.

Local Funds: Monies provided by any unit of local government including a publicly owned utility and Joint Powers Authority (JPA).
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Match Funds: Funds under an air district’s budget authority that will be applied towards eligible Moyer Program projects in accordance with the matching requirements of the program. See H&SC Section 44287(e) and 44287.2(c).

Maximum Dollar Amount: The maximum amount of funds that may be expended on a project as specified by source category and project type, often to reflect incremental cost.

Maximum Grant Amount: The maximum amount of money a grantee is eligible to receive for a cost-effective Moyer Program project. The maximum grant amount for a project is the lowest of the three following values: (a) the grant amount at the cost-effectiveness limit; (b) the maximum percentage of eligible cost; or (c) any maximum dollar amount specified in the relevant source category chapter.

Maximum Percentage: The maximum percentage of eligible cost that may be expended on a project as specified by source category and project type, often to reflect incremental cost.

Memorandum of Agreement (MOA) or Memorandum of Understanding (MOU): A document recording the basic terms of a proposed transaction or setting forth the principles and guidelines under which parties will work together.

Mitigation Funds: Monies received for the compensation for the impacts to the environment from a proposed activity.

Moyer Eligible Cost: Costs associated with projects that are eligible for reimbursement under the Moyer Program, prior to considering the cost-effectiveness limit or any project funding cap restrictions. This includes the sum of Moyer Paid Cost and Remaining Eligible Cost.

Moyer Ineligible Cost: Costs associated with a project that are not eligible under the Moyer Program guidelines, but are eligible project costs under other funding sources.

Moyer Paid Cost: Project costs eligible under the Moyer Program, and are to be paid by the Moyer Program. These costs are used to determine project cost-effectiveness, except in the case of infrastructure projects.

Moyer Program Funds: State funds awarded by CARB to local air districts to implement the Moyer Program, including project and administrative, and interest revenue from the awarded funds, and revenues from salvage of equipment scrapped under the program.

Local funds that are under the air district’s budget authority may also qualify as Moyer Program funds or match funds (see H&SC Section 44287(e)); however, certain limitations apply (see H&SC Section 44287(j)).

Nationally Recognized Testing Laboratory: Is a private-sector organization that the Occupational Safety and Health Administration (OSHA) has recognized as meeting the legal requirements in 29 CFR 1910.7 to perform testing and certification of products using consensus-based test standards.

New Station: Construction of a new battery charging or hydrogen fueling station where there is currently no station.
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Non-Moyer Funds: Project funds from sources other than the Moyer Program, Moyer match funds, and AB 923 $2 DMV fees.

Other Applied Funds: Funds that are not local, State, or federal that are used to co- fund a Moyer eligible project.

Operator: A person, corporation, public agency, or other entity that owns, operates or maintains a vehicle, equipment, or installation.

Penalty Funds: Funds paid to an enforcing entity as a result of enforcement action brought against a violator of a local, State or federal law, ordinance, regulation or rule.

Policies and Procedures: An air district manual for local implementation of the Moyer Program. For more information see Chapter 3, Section D.

Priority Population: Priority populations include disadvantaged communities, low- income communities, low-income households, and updates to the definition in accordance with the Funding Guidelines for Agencies that Administer California Climate Change Investments.

Program Milestone:A measure of progress toward meeting Moyer Program grant terms or statutory requirements. Examples are contract execution, liquidation and (in Chapter 5) commitment.

Project Life: The period for which the Moyer Program funds surplus emission reductions for a given project.

Project Funds: Moyer Program funds designated for eligible project costs to reduce covered emissions from covered sources.

Publicly Accessible: An infrastructure project that is available to provide fuel or energy to all members of the general public with no physical access restrictions and no necessity to enter into a contract or sign release of liability.

Public Entity: The State of California, a public university or college, a county, city, district, public authority, public agency, public corporation, another State government, the federal government, or any other subdivision or agency of a State government or the federal government.

Public Funds: Funds provided toward project costs by local, State or federal public entities, including grants, rebates, and vouchers.

School Bus: Vehicles used for the express purpose of transporting students, kindergarten through grade 12, from home to school, school to home, and to any school sponsored activities.

Sensitive Receptor: Any residence including private homes, condominiums, apartments, and living quarters; education resources such as preschools and kindergarten through grade twelve (K-12) schools; daycare centers; and health care facilities such as hospitals or retirement and nursing homes. A sensitive receptor includes long-term care hospitals, hospices, prisons, and dormitories or similar live-in housing. 10/24/2024 10-18 INFRASTRUCTURE
Shore Power: Electrical power being provided to the ship at berth by either the local utility or by distributed generation.

Small Fleet: In the on-road sector, a fleet size of three or fewer vehicles as defined in the California Code of Regulations, title 13, Section 2025(d)(31)(G). Under the In-Use Off-Road Diesel-Fueled Fleets Regulation, a fleet with a total maximum power of less than or equal to 2,500 horsepower that is owned by a business, nonprofit organization, or local municipality; or a local municipality fleet in a low population county irrespective of total maximum power; or a nonprofit training center irrespective of total maximum power. Under the Large Spark Ignition Engine Fleet Requirements Regulation, an operator’s aggregated operations in California of 1 to 3 forklifts and/or 1 to 3 pieces of non-forklift equipment.

State Funds: Funds provided by a State agency for the purpose of co-funding projects under the Moyer Program. State agencies include every State office, department, division, bureau, board, commission, the University of California, and the California State University.

Total Project Cost: The Moyer Eligible Cost and the Moyer Ineligible Cost for vehicles, equipment, engines, accessories, installation, and infrastructure within a single Moyer Program project. An applicant may not accept grant funds from all sources that exceed 100 percent of total project cost excluding the Applicant Cost Share.

Transport Refrigeration Unit (TRU): A refrigeration system powered by an internal combustion engine designed to control the environment of temperature sensitive products transported in trucks and refrigerated trailers. TRUs may be capable of both cooling and heating.

Truck Stop Electrification: The installation at a truck stop of electric power infrastructure and/or external systems that provide heating, cooling, and other energy needs for trucks.

Utility: A privately-owned company that provides the same or similar service for water, natural gas, and electricity as a public utility operated by a municipality.

Verification: A determination by CARB or the U.S. EPA that a diesel emission control strategy meets specified requirements, based on both data submitted and engineering judgement.

IV. References
California Code of Regulations Title 17, Section 93118.3; Chapter 1: Air Resources Board; Airborne Toxic Control Measure for Auxiliary Diesel Engines Operated on Ocean-Going Vessels At-Berth in a California Port.
https://www.arb.ca.gov/ports/shorepower/finalregulation.pdf Legislative Digest Counsel (October 8, 2015) Senate Bill No. 513 Chapter 610: SB 513, Beall.

Carl Moyer Memorial Air Quality Standards Attainment Program: Fees. https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201520160SB513 Occupational Safety and Health Administration (2024) Nationally Recognized Testing Laboratory Program: Current List of NRTLs.
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https://www.osha.gov/dts/otpca/nrtl/nrtllist.html
Society of Automotive Engineers International (2024) SAE Standards. http://standards.sae.org/
10/24/2024 10-20 INFRASTRUCTURE
How to Determine and Verify
Operating and Maintenance
Savings in Energy Savings
Performance Contracts
March 2018

Contacts
Ira Birnbaum
Federal Energy Management Program
EE-5F, 1000 Independence Ave S.W.

Washington, D.C. 20585-0121
Phone: 202-287-1869
E-mail: [email protected]

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS iii
Abbreviations and Acronyms
CRAC Computer Room Air Conditioner
CRAH
ECM
Computer Room Air Handler
Energy Conservation Measure
FEMP Federal Energy Management Program
M&V Measurement and verification
O&M Operations and maintenance
R&R Repair and replacement

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS iii
Contents
1 Introduction........................................................................................................................ 1 Background........................................................................................................................ 2 Existing Guidance................................................................................................................ 2 2 The M&V Approach.............................................................................................................. 3 Calculation Method............................................................................................................. 3 3 The Contractual M&V Plan.................................................................................................... 4 Defining and Documenting the Baseline................................................................................ 4 Managing Repair and Replacement Costs and Savings........................................................... 5 Calculating Savings and Adjusting Baselines.......................................................................... 5 Defining Ongoing Verification Activities.................................................................................. 6 4 M&V Reports During the Reporting Period.............................................................................. 7 Verifying and Reporting Savings............................................................................................ 7 5 Example Scenarios.............................................................................................................. 8 Example 1: Savings from the Elimination of a Maintenance Contract ....................................... 8 Example 2: Savings from Reduction in O&M Staff................................................................... 9 Example 3: O&M Savings from Decreased Need for Replacement Equipment......................... 10 Example 4: O&M Savings from Decreased Need for both Labor and Replacement Equipment.. 12 Example 5: O&M Savings from Decreased Need for Data Center Labor and Replacement Equipment................................................................................................................. 13 6 Lessons Learned............................................................................................................... 16 Appendix 1: Federal-Specific References................................................................................... 17 List of Tables
Table 1: O&M Maintenance Savings from Eliminated Service Contract........................................... 8 Table 2: Labor Cost Savings for 10 Year Contract....................................................................... 10 Table 3: Costs and Lifetimes for Lighting Equipment .................................................................. 11 Table 4: Calculated Baseline Material Costs .............................................................................. 11 Table 5: Proposed Performance Period Material Costs................................................................ 11 Table 6: Annual Cost Savings on Replacement Parts .................................................................. 12 Table 7: Annual Cost Savings for Materials (R&R) and Contract Labor from Chiller Upgrade........... 13 Table 8: Annual Cost Savings for Materials (R&R) and Contract Labor from Data Center Retrofit ECM14

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS v
Executive Summary
Operations and maintenance savings are a frequent phenomenon in energy savings performance contracting (ESPC). Sometimes they are acknowledged and credited towards paying down these financed projects; sometimes, for avoidable or unavoidable reasons, they are not. This guide posits that, where legitimate, O&M (and related repair and replacement) savings should be credited in ESPCs’ financials, helping to augment project scopes and/or lower interest costs (by shortening financing terms). However, there is a burden of proof as to what constitutes legitimacy in O&M savings that needs to be carefully considered and documented in individual projects. Beyond promoting a key tenet used in U.S. federal performance contracting – that savings need to be from actual budgets and therefore based off the level of O&M that is occurring, not what should have been performed – the guide also recommends good practice in establishing O&M baselines,formulating the rationale for baseline adjustments during the performance period, and conducting ongoing verification activities. The document concludes with five examples of how O&M savings can be handled, in situations ranging from the partial displacement of O&M contracts to consolidation and “virtualization” of servers in data centers. One key theme that permeates the guide is the importance of thoroughly documenting all conditions and assumptions used for O&M savings throughout the ESPC life cycle, from baseline-setting to measurement and verification (M&V) of the savings during each year of the performance period. Doing so not only prevents internal claims of non-performance (especially in the almost inevitable case where staff turnover takes place during the contract term), but also simplifies customer and ESCO response in the event of scrutiny from oversight organizations, such as government audits.

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Introduction 1
1 Introduction
This document was originally developed in 2007 by the Operations and Maintenance (O&M) Savings Determination Working Group of the Federal ESPC Steering Committee (FESC). It was revised in 2017 by Lawrence Berkeley National Laboratory (LBL), with assistance from the National Association of Energy Service Companies (NAESCO) and review from the U.S. Department of Energy’s Office of General Counsel.

Subsequently, a draft was provided to the FESC for review. It serves as a guide to incorporating, documenting, and verifying O&M savings in energy savings performance contracts (ESPCs).

A 2016 analysis of annual measurement and verification (M&V) reports from over 250 active federal ESPC projects showed that roughly 25% of the reported dollar savings were due to reductions in “oth er energyrelated and O&M” costs. These other energy-related cost savings can include savings from repair and replacement (R&R) costs and assorted other miscellaneous sources in which dollars but not necessarily site energy use is saved (e.g., renewable energy credits, demand response program participation, fuel switching, data center server virtualization, etc.). While they can constitute a substantial portion of a project’s savings, O&M and R&R cost savings are often not as diligently verified or reviewed as strict energy savings.

In late 2016 and early 2017, LBL and NAESCO interviewed over 40 representatives of federal agencies and the energy service companies (ESCOs) that deliver their ESPCs to try to assess the norms and obstacles around incorporating O&M savings in ESPCs. The work was commissioned by the U.S. Department of Energy’s Federal Energy Management Program (FEMP) and driven by two key concerns. First, O&M savings can be a very valuable addition to ESPCs, permitting greater scope in projects (e.g., allowing a desired but economically marginal energy conservation measure to be included in an ESPC) and lowering costs (by shortening project terms and thereby reducing interest expenses). However, O&M savings in ESPC projects are sometimes claimed with limited documentation and performance period verification, exposing customer facilities to savings shortfalls and reprimands from oversight organizations. The role of this guide is to promote the use of legitimate O&M savings in ESPCs while advocating good practices to assure that those savings are credible and persistent.

To support the integrity of ESPCs, new projects must strengthen the basis for O&M cost savings.

Documenting and verifying O&M and other energy-related savings will help ensure persistence of the savings for the contract term, avoid conflicts, and address oversight concerns (the majority of ESPC projects in the U.S. are conducted by public sector institutions). Key items identified for improvement in new projects are baseline documentation, savings calculation methods, and verification of O&M and R&R savings. This document provides direction in these areas for recurring energy-related cost savings, given the following key assumptions:
• An organization’s decision to commit ongoing funds from O&M budgets towards ESPC project payments has long-term impacts and must be documented adequately for future staff and oversight organizations.
• “Savings” due to redirected labor that do not reduce actual (budgeted) expenses – whether by inhouse staff or O&M contractors –should not be claimed as savings in an ESPC. • It is incumbent on ESPC customer organizations to maintain O&M cost records, as these are critical in order to document baseline O&M costs for an ESPC. • ESCOs should include detailed information in their performance period M&V reports to clearly convey the source of O&M savings, as well as sufficient data to verify any savings claimed.

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Introduction 2
Background
O&M and other energy-related cost savings are generally allowable in ESPCs. We define them here as reductions in expenses (other than energy cost savings) that are related to energy-and water-consuming equipment.

Energy-related cost savings can result from avoided expenditures for operations, maintenance, equipment repair, or equipment replacement due to the ESPC project. This includes capital funds for projects (e.g., equipment replacement) that, because of the ESPC project, will not be necessary. Sources of energy -related savings include:
• Avoided capital or operating expenses
• Transfer of responsibility for O&M and R&R to the ESCO • Avoided renovation, renewal, or repair costs as a result of replacing old equipment (this can include costs – energy losses or O&M expenses – that would continue to escalate without the ESPC project).

Methods for estimating O&M (including R&R) savings resulting from changes to equipment have not been developed for the International Performance Measurement and Verification Protocol (IPMVP) or FEMP’s M&V guidelines 1.However, the general rule to follow is that any savings claimed from O&M activities must result in a real decrease in anticipated expenditures, not simply freed up O&M effort. O&M budget baselines cannot be based on what an organization should be spending for proper O&M; baseline expenditures must be based on what the customer is spending. The organization’s O&M expenditures after implementation need to decrease for savings to be considered real.

Existing Guidance
FEMP’s Practical Guide to Savings and Payments (2009) describes a few related example scenarios regarding one-time and recurring payments arising from O&M and R&R cost savings. The guidance sets out sources of allowable energy-related cost savings, which include avoided costs of programmed expenditures that become unnecessary due to implementation of an ESPC project. As discussed above, such savings must come from real and verifiable budgets, not from the perceived value that the customer receives for the reduction. “Savings” due to redirected labor or O&M efforts that do not reduce real expenditures cannot be claimed as savings under an ESPC.

In addition, the Department of Energy’s IDIQ contracts include a “risk and responsibility matrix” that provides information on key issues regarding O&M savings. For instance, the matrix distinguishes recurring costs, such as those from conventional O&M activities, from one-time costs, such as the replacement of a piece of equipment that had already been budgeted for. Both are permissible under the contract, but the matrix warns that including these savings in ESPCs presents some risk to customers, for instance that the budgeted equipment funds may fail to materialize as expected.

1 M&V Guidelines: Measurement and Verification for Performance-Based Projects, Version 4.0 (2015)

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS The M&V Approach 3
2 The M&V Approach
Determining the appropriate level of effort to invest in the M&V of energy-related cost savings follows the same dictum as for energy cost savings: The level of M&V rigor should be a function of (a) the magnitude of expected benefits (savings and performance improvement) from the project, and (b) the risk of not achieving those benefits.

Calculation Method
The most common approach for calculating energy-related cost savings involves the same concepts as those used for determining energy savings: Performance-period labor and equipment costs are subtracted from adjusted baseline values, as shown in the equation below.

O&M Cost Savings = {Adjusted Baseline O&M Costs} – {Actual O&M Costs} This method is appropriate for most projects, and is simple to apply to those that include elimination of a maintenance contract or reduction in staff. For projects in which R&R reductions are achieved, costs for replacement parts can often be determined from purchasing records and averaged to arrive at an annual baseline value. Labor costs for particular services may be more difficult to quantify since service records may not be representative or may lack sufficient detail. For example, parts costs for replacement lights or st eam traps may be relatively easy to quantify from purchasing records. Labor costs to replace these same items are often more difficult to quantify because time spent on these specific tasks may not be well documented. Labor reductions on these tasks may sometimes not qualify as “real savings” if total labor expenditures at the customer site do not decrease. Although the customer receives value in the sense that labor is freed up to perform other useful tasks, this value may not result in monetized savings that can be paid to the ESCO. Sites considering ESPCs should evaluate the degree to which their documentation captures O&M labor and strongly consider enhancing their record-keeping in order to reflect the work.

Baseline O&M and R&R costs should be based on actual budgets and expenditures to the greatest extent practical. This involves essentially “measuring” the baseline consumption of these parts or services. Estimated expenditures should be avoided if at all possible. In cases where actual budget information is not available and must be estimated, parts and labor costs can be derived from resources such as RSMeans 2, but estimated expenditures should be adjusted to reflect any site-specific factors that would affect costs. ESCOs should get agreement from the customer and the customer should review and ensure that sources of estimated costs are acceptable before these sources are used to develop detailed savings estimates.

Example applications of legitimate O&M savings following these guidelines are demonstrated in several specific examples in Section 5.

2 www.rsmeans.com

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS The Contractual M&V Plan 4
3 The Contractual M&V Plan
The M&V plan for an ESPC project should include the following items to document O&M (including R&R) cost savings for each ECM:
 A detailed explanation of how savings will be generated  A description of the O&M baseline, including the method by which it was developed (e.g., averaging of hours expended from x number of years of facility logs)  All relevant cost savings calculations, with references to sources used  A thorough description of conditions that would necessitate baseline adjustments, including quantification of the expected effects from these changes (e.g., of space usage, operating hours, etc.)  The method and frequency by which verifications will take place during the performance period, in sufficient detail that these verifications could be conducted by an outside party.

The key test of the validity of the M&V plan is whether a customer staffer who has not been involved in the development of the project, or an outside auditor, understands and accepts the savings calculatio ns in the plan at any time during the project performance period.

Defining and Documenting the Baseline
Establishment of a credible O&M baseline is critical. In general, the baseline labor and equipment costs can be determined from the following:
• Historical data on costs of equipment parts and consumables • Records of historical labor hours based on work orders and timesheet systems • Labor rates, including benefits and overhead as well as any part-time or temporary labor services • Existing contracts for O&M services
Adequate documentation in the M&V plan should include the following:
• Identification of key variables affecting the realization of savings • Specification of how the customer’s expenditures will directly be reduced by the implementation of the measure or O&M contract
• Definition of the O&M performance standard (e.g., annual chiller tube cleaning or lamp replacements within 48 hours of burnouts) during the performance period.

An issue in defining the baseline is establishing the time period for analysis. How far back do you go to define the O&M baseline? If equipment has needed an atypically high level of maintenance during the last years of service, the baseline should generally be weighted to indicate this (except where, for instance, recent expenses have been skewed by a one-time emergency repair). This decision requires engineering judgment, and will

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS The Contractual M&V Plan 5
depend on the availability of historic data. A fundamental goal, besides accurately representing the baseline, is to provide transparency in the decision-making process by thoroughly documenting why a specific method was chosen, what data were available and used, and how the cost savings formulas and variables were determined.

In general, using as much historical data as possible is recommended when defining the baseline conditions.

Ideally, requirements for maintenance parts and/or labor should be determined for the recent life of the equipment, from which an average annual cost can be calculated. If the O&M savings vary dramatically from year to year, particularly if there is a clear trend (usually upward, as equipment reaches or exceeds its rated life), it may not be appropriate to use a simple average cost. This is a case-by-case decision since overall savings from the ESPC should be sufficient to cover payments (this is a requirement for federal ESPCs). The key is determining with confidence that historic costs would continue if not for the project. Actual site data should be used wherever possible. Conducting a “reality check” on historic O&M costs using RSMeans’ facility maintenance cost data or other sources is recommended to ensure that site data are realistic.

For sites that do not have detailed O&M records and where the ESCO will be assuming some O&M responsibility, the customer can allocate a portion of its O&M budget to cover ESCO services. This approach requires a long-term commitment from the customer and therefore should be carefully vetted with those most familiar with the O&M and budgeting at the facility. The ESCO should get conceptual confirmation from the customer for this approach before spending the time to calculate the savings in detail.

Though it is rare, energy projects can increase O&M costs over the baseline conditions by adding new equipment or by requiring certain preventive maintenance activities that were not previously conducted. Since only real budgetary savings should be claimed, O&M “savings” can sometimes be negative if additional costs are incurred. These costs and the responsibility for them should be made clear in both the ECM’s narrative and the project’s cost schedules, just as savings would be. If the responsibility is the facility’s, then the additional costs should be treated as “negative savings” and should be specifically detailed. If the responsibility for the new O&M is the ESCO’s then those expenses will generally be itemized in the performance period cash flow of the project.

Managing Repair and Replacement Costs and Savings
In some cases, a site’s O&M budget may include general funding for emergency R&R. Sometimes this is the only R&R budget, and it is not allocated for specific equipment (e.g., boiler X will be replaced in year Y). For customers with an unspecified R&R fund, it may be possible to claim one-time or periodic avoided material costs and/or sub-contracted labor fees (though ESCOs should be aware that some customers may be unwilling to concede these funds). Alternatively, if the ESCO is assuming responsibility for some portion of the infrastructure, a justified portion of the avoided annual budget attributed to material replacement and contracted labor cost could be allocated as an annual savings. In both cases, the rationale for claiming the cost savings, the source of savings, and the specific year(s) of implementation must be carefully documented, in sufficient detail such that an outside party (such as an auditor) can understand and accept the savings calculations sometime in the future.

Calculating Savings and Adjusting Baselines
Documentation of calculation methods should include how the baseline O&M and R&R budgets were established, taking into consideration costs for labor and materials for equipment replacement, equipment maintenance and repairs, and any other relevant factors. Additional details should be included such as hourly labor costs, labor inflation rates, hours required per specific task, and equipment lifetimes.

The M&V plan should also specify how adjustments could be made to savings calculations to account for changes at the facility. Factors such as changes in operating hours, occupancy, loads, and equipment life will affect HVAC system maintenance costs. If baseline cost data will be adjusted, the reasoning and methodology

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS The Contractual M&V Plan 6
should be included.

It is necessary to define how actual costs will be accounted for during the performance period. The ESCO should specify what, if any, additional facility management oversight or logs need to be maintained, the nature and frequency of entries, and how the results will be interpreted. Examples include logging of equipment failures and frequencies, equipment down time, and complaints.

Best practice is to use standard accounting procedures that allow for direct comparison of baseline to performance period costs (“apples to apples”). Another option may be to use a “control group” facility that is similar to the project site to determine what the O&M costs would have been in the absence of the ECM.

Defining Ongoing Verification Activities
The M&V plan should specify all performance period verification activities and include the following:
• How savings persistence will be ensured and, equally as important, documented. This is especially critical because site turnover is likely over the typical ESPC term and new staff may be dubious about claimed savings
• How compliance with performance standards for the facility will be verified • What will occur if performance standards are not met
• How savings will be counted if site behavior changes, and what will occur if actual O&M costs incurred by the site exceed estimates
• How long O&M savings will last -- cost savings may in some cases only be scheduled for part of the contract term (though it is not unreasonable in some cases for the savings to persist through the life of the contract).

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS M&V Reports During the Reporting Period 7
4 M&V Reports During the Reporting Period
O&M and R&R savings must be adequately verified and reported during the performance period. Generally, the medium for documenting this is the M&V report, issued periodically (often annually) during the performance period. Key items that should be addressed for each ECM include the following:
• Description of any verification activities
• Detailed explanation of any baseline adjustments, with reference to the M&V plan’s discussion of how these changes (e.g., of space usage, operating hours, etc.) were to be handled • Assurance that performance standards (e.g., work order resolutions or scheduled preventive maintenance routines) are being adhered to.

Verifying and Reporting Savings
Adequate documentation of performance period O&M savings should include the following:
• Dates and times of on-site verification activities, including customer witnessing, if appropriate (witnessing is required for federal ESPCs)
• Review of key variables affecting the realization of savings • Verification that standards of performance have been met.

Baseline budgets and service contract fees may be escalated to account for inflation during the contract term.

Escalation rates need to be documented and, except when directed from other authorities (e.g., governmental policy guidelines), should come from credible inflation forecasts from sources such as the President’s Council of Economic Advisers 3(the CEA’s inflation rate is incorporated into the popular ESPC escalation rate calculator, EERC), not “ballpark estimates” of customers or ESCOs.

3 www.whitehouse.gov/cea

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 8
5 Example Scenarios
These hypothetical examples are provided to illustrate some of the common sources of O&M savings in ESPC projects.

Example 1: O&M Savings from the Elimination of a Maintenance Contract Prior to the implementation of the ESPC, space conditioning at the facility was provided by aging boilers and chillers that were maintained by a third party under a maintenance contract. The ESPC replaces the aging equipment with newer, more efficient equipment that the ESCO maintains for the life of the contract.

This is probably the easiest type of O&M savings to verify, and the least controversial. Since a maintenance contract (or at least a portion of one) will be eliminated, O&M cost savings can be claimed. The annual O&M savings will be the cost of the maintenance contract during the baseline year (increased slightly each year to account for price inflation, assuming this is provided in the eliminated service contract). There can be little disagreement that these cost savings are achieved, since the former equipment is no longer in service and no longer requires maintenance. O&M savings are calculated using the following equation:

O&M Cost Savings = {Adjusted Baseline O&M Costs} – {Actual O&M Costs} The O&M savings is then the difference between the annual cost of the old contract, adjusted for inflation, and the actual maintenance costs, which will be zero (the ESCO will incur O&M costs as part of its fulfillment of this role, but these will be incorporated into its performance period expenses, and often reflected in a separate financial schedule (Schedule 3 in eProject Builder, for instance)). The first step is to determine the site’s current costs for the service contract that will be eliminated. A review of the service contract showed costs of $22,250 in the baseline year, with an annual increase in fees of 2.5%.

During the performance period, the baseline costs will be the current costs inflated by a constant amount each year (2.5%). Per above, the actual O&M costs for the formerly contracted maintenance personnel in the performance period are expected to be zero. The savings stream for the ten-year ESPC is shown in Table 1.

Table 1: O&M Maintenance Savings from Eliminated Service Contract Annual System Maintenance Cost
Y ear Exi sting Baseline Performance Peri od
Cost
Proposed
Savi ngs
0 $22,250
1 $22,806 $0 $ 22,806
2 $23,376 $0 $ 23,376
3 $23,961 $0 $ 23,961
4 $24,560 $0 $ 24,560
5 $25,174 $0 $ 25,174
6 $25,803 $0 $ 25,803
7 $26,448 $0 $ 26,448
8 $27,109 $0 $ 27,109
9 $27,787 $0 $ 27,787
10 $28,482 $0 $ 28,482
$255,507

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 9
Verification of these savings includes confirmation in the post-installation or first-year M&V report that the equipment and related O&M contract were eliminated. All subsequentperformance reports will thoroughly document the source and persistence of savings (e.g., documenting with facility personnel that no O&M contract with an outside vendor has been executed for the covered equipment). The facility should also verify that the ESCO is performing the required O&M activities.

Example 2: O&M Savings from Reduction in O&M Staff
Prior to the implementation of the ESPC, space conditioning at the facility was provided by aging boilers and chillers that were operated and maintained by in-house employees. The ESPC replaces the aging equipment with newer, more efficient equipment, which the ESCO will operate and maintain. As a result of this retrofit, three of the customer’s operations and maintenance staff members will no longer be required. Two staff members will be taking retirement, while one other will be transferred to another division, filling an existing approved and budgeted position within the organization – i.e., one that would have been filled anyway.

Since there will be a reduction in the customer’s maintenance staff, O&M savings can be claimed (with the full understanding, as in Example 1 above, that some portion of the eliminated O&M effort will now be undertaken by the ESCO and reflected in its performance period expenses). O&M savings are calculated using the following equation:

O&M Cost Savings = {Adjusted Baseline O&M Costs} – {Actual O&M Costs} The first step is to determine the site’s current costs for the staff members who will be eliminated. A review of the site’s accounting records indicates that the salaries and benefits of the three eliminated employees (adjusted somewhat for the fact that two of the three were latecareer and thus compensated more generously) would normally cost the agency $310,000 during the last year before the ESPC’s installation. This is the baseline cost for year 0. During the performance period, the adjusted baseline costs will be the sum of the annual salaries and benefits of the staff members who will be eliminated inflated by a constant amount each year (2% in this case). The actual O&M costs for these staff in the performance period are expected to be zero.

The savings stream from these savings for a ten-year period is shown in Table 2, which assumes that a 2% annual increase in compensation costs would have occurred.

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 10
Table 2: Labor Cost Savings for 10-Year Contract
Annual Sy stem Labor Costs
Y ear Exi sti ng Cost Post-Instal l Cost Net Savi ngs
0 $310,000
1 $316,200 $0 $316,200
2 $322,524 $0 $322,524
3 $328,974 $0 $328,974
4 $335,554 $0 $335,554
5 $342,265 $0 $342,265
6 $349,110 $0 $349,110
7 $356,093 $0 $356,093
8 $363,214 $0 $363,214
9 $370,479 $0 $370,479
10 $377,888 $0 $377,888
$3,462,301
The first-year or post-installation verification of the O&M savings will confirm the maintenance staff reductions and that the ESCO has assumed prescribed O&M activities. All following performance reports will thoroughly document the source of savings and confirm that the ESCO is continuing to perform the O&M activities (e.g., documenting with facility personnel that no replacement staff have been hired, or no staff have been assigned to tasks performed by the eliminated staff.) A problem could arise if the maintenance staff is not reduced. Then it would be necessary to determine what new O&M responsibilities the facility has taken on, and to assess the contractual responsibility (customer or ESCO) if a savings shortfall is evident. For example, it could be that a new building was constructed, requiring facility personnel to take on new O&M responsibilities. During the performance period, it is important to establish that any unforeseen maintenance by in-house personnel was not due to the equipment installed under the ESPC. In some cases this may require examination of service call records from before and after the implementation of the ESPC. All of this information should be thoroughly documented during the entire performance period, with periodic review and acceptance of this documentation by customer contract managers.

Example 3: O&M Savings from Decreased Need for Replacement Equipment Material-related savings frequently result from lighting and lighting controls projects. In this hypothetical example, the customer is responsible for maintenance both before and after the equipment installation.

Although there is no reduction in staff for which to claim labor savings, there will be cost savings on replacement materials.

For this project, lighting maintenance savings will result from the following:

1. Reduced material requirements (e.g., lamps, ballasts) • Longer equipment life – LED lamps have longer lifetimes • Reduced operating time – Controls measures increase equipment life by reducing burn time.

2. Warranty-related savings – Newly installed lamps and drivers come with a manufacturer warranty of five years.

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 11
The reduction in equipment costs is determined by calculating the difference between what replacement parts for the baseline would cost and what parts for the new lighting system cost.

O&M Cost Savings = {Adjusted Baseline O&M Costs} – {Actual O&M Costs} For this project, the following assumptions apply:

1. Lamp, ballast, and driver costs and expected lifetimes are defined in Table 3.

Table 3: Costs and Lifetimes for Lighting Equipment

Equipment
Rated Life
(hours)

Cost per uni t
4' T8 lamp (existing) 20,000 $ 2.78
2-lamp electronic ballast
(existing)

60,000

$ 16.70
4’ TLED lamp with driver (new) 50,000 $ 18.30

2. Increased cycling of the lights resulting from the occupancy sensors has a negligible effect on TLED lamp/ballast life.

3. The entire project (including all other measures) has a performance period of 10 years.

4. Escalation of materials costs will be 2.0% per year.

The first step is to determine the site’s costs for replacement lighting equipment. A review of the site’s records indicated that replacement lighting equipment for the fluorescent T8s totaled $4,250 and $4,650 the last two years, with an average of $4,450. A reality check based on the expected useful service life of the equipment and known operating hours was then conducted to confirm that this value is reasonable, as shown in Table 4.

Table 4: Calculated Baseline Material Costs
Baseline Qty Cost
Lighting equipment (2-Lamp T-8 fixtures w/ RO
electronic ballast):

5,000
Run Hours: 3,000
Lamp replacements per year: 1,000 $ 2,780
Ballast replacements per year: 100 $ 1,670
Annual Cost: $ 4,450
The third step is to estimate the expected replacement equipment costs during the performance period. These calculations are shown in Table 5.

Table 5: Proposed Performance Period Material Costs
Post-Installation Eqpt. Qty Cost
Lighting equipment (2-Lamp TLED fixtures): 5,000
Run Hours (with occupancy controls): 2,250
Lamp replacements per year: 100 $ 1,830
Driver replacements per year: $ 1,845
Annual Cost: $ 3,675

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 12
Next, the cash-flow from the material savings is determined, accounting for the warranty that comes with the new lighting system. Under this warranty, all replacement lamps will be provided by the equipment manufacturer at no cost for the first five years. Using the escalation rate of 2.0% for material costs, the material maintenance cost savings for the 10-year project term would vary year to year, as shown in Table 6.

Table 6: Annual Cost Savings on Replacement Parts
Annual System Equipment Cost

Note

Y ear

Exi sting
Cost
Performance
Period
Cost*

Net
Savings
0 $4,450
Warranty Period 1 $4,539 $0 $4,539
Warranty Period 2 $4,630 $0 $4,630
Warranty Period 3 $4,722 $0 $4,722
Warranty Period 4 $4,817 $0 $4,817
Warranty Period 5 $4,913 $0 $4,913
Yr. 0 costs escalated to Year 6 6 $5,011 $4,139 $872
7 $5,112 $4,221 $891
8 $5,214 $4,306 $908
9 $5,318 $4,392 $926
10 $5,425 $4,480 $945
$ 28,163
* Note that year 6 costs represent $3,675 (see Table 5) escalated at 2% per year.

Annual verification of the O&M savings will include the customer reporting the actual number and cost of replacement lighting equipment to the ESCO, which will compare the data to what would have been required in the baseline case and incorporate any differences into its periodic M&V reports.

Example 4: O&M Savings from Decreased Need for both Labor and Replacement Equipment
Material-related savings can also result from ECMs that replace large capital equipment, such as chillers and boilers. In this hypothetical chiller example, the customer is responsible for O&M, both before and after the installation of the two new chillers, but that O&M is being conducted by an on-site contractor. The ability to claim savings from both labor and replacement materials is conditioned on negotiation with, and consent from, the O&M contractor.In addition, there is a capital savings in the third year of performance because the chiller replacements had been scheduled for then and the customer has worked with its budget authority to assure that the expected budget allocation will materialize as planned.

For this project, chiller O&M savings will result from the following:

1. Contract labor savings – Per site logs and the labor contract, the effort to maintain the existing chiller plant is costing the site $40,000 annually (per its O&M contract) in labor and the contractor and site have settled on the new cost being half this, $20,000 per year for the remainder of the O&M contract (three years) after construction is complete. After this point, there are no additional labor savings, as the expectation is that the customer would then have replaced the chillers itself with ones requiring comparable O&M effort.

2. Reduced material requirements (e.g., valves, pump and motor parts/replacement) – These parts have

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 13
been costing the site an average of $25,000 annually on the existing chiller plant and are expected to cost zero for the first five years of the performance period (due to warranty coverage). The agreedupon annual cost that would have been incurred by the site starting in performance year 4 with its own new chillers is $12,000, adjusted for 2% inflation the following year. No O&M savings are forecasted after year 5, when the R&R warranty expires.

In addition, the site has agreed to make a capital contribution to the financing in the third year of performance (the fifth year of the term, counting two years of construction) of $500,000, the budget allocation it is expecting for the replacement of the two 600-ton chillers.

The reduction in equipment costs is determined by referring to RSMeans, as well as O&M experts in the organization, and then consulting and negotiating with the current O&M contractor, which has been active at the site for many years and is signing a new five-year contract with the site roughly simultaneous to the awarding of the ESPC. The estimated difference between what replacement parts and contracted labor will cost the site from the baseline to after the chiller plant upgrade is depicted in Table 7, below.

Table 7: Annual Cost Savings for Materials (R&R) and Contract Labor from Chiller Upgrade Annual Sy stem Labor and Materi al s Cost
Performance
Y ear
Exi sting Labor
Cost
Performance
Period Labor
Cost
Exi sti ng
Materials (R&R)
Cost
Performance
Period Materi al s
(R&R) Cost
Labor and
Materials Savings*
1 $ 40,000 $ 20,000 $ 25,000 $ - $ 45,000
2 $ 40,000 $ 20,000 $ 25,500 $ - $ 45,500
3 $ 40,000 $ 20,000 $ 26,010 $ - $ 46,010
4 $ 20,400 $ 20,400 $ 12,000 $ - $ 12,000
5 $ 20,808 $ 20,808 $ 12,240 $ - $ 12,240
Total s $ 161,208 $ 101,208 $ 100,750 $ - $ 160,750
* These calculations exclude the $500,000 one-time savings in year 3 from the avoided chillers’ expense.

In this example, it is worthwhile to consider the risks being assumed by the customer. In the first three years of performance, the labor savings (of $20,000 per year) have been contractually agreed upon between the customer and its O&M contractor, so the savings can be seen as risk-free. Similarly, the claimed materials savings (five years’ worth) on the replacement chillers are without risk because the ESCO has obtained a warranty to cover them. However, the dollar amount of those savings is estimated, based on expectations about what the customer would have spent during that period (first with the old chillers and then, in the last two years, with its own replacement equipment).

Example 5: O&M Savings from Decreased Need for Labor and Replacement Equipment in a Data Center
Data centers are an intriguing opportunity for ESPCs, partly because of the large prospect for O&M savings.

Savings sources such as “consolidation” and “virtualization” make data centers a fairly unique – and sometimes challenging – target for ESPCs, but also a potentially very worthwhile and lucrative one.

One hypothetical example involves a roughly 500,000 square foot (sf) government office building with a 9,000 sf data center and roughly 11,000 sf of dispersed small data centers (< 5,000 sf) and server closets (< 500 sf).

While these spaces constitute only about 4% of the building space, the ESCO’s audit estimates that their energy consumption represents 30-35% of the facility’s energy usage.

The ESCO (working with a sub-contractor that specializes in energy-efficient data center design) recognizes

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 14
numerous opportunities centered on consolidation of the majority of the 11,000 sf of distributed data center functionality into the main data center space. Because most of the servers, both in the central data center and the distributed spaces, are substantially under-loaded – the great majority use less than a third of their capacity (which is typical) – the ESCO proposes to transfer almost all of the dispersed server activities into the cen tral data center through both physical “consolidation” of servers (primarily utilizing the most recently procured equipment and retiring older machines), as well as extensive “virtualization” of processing functions.

Virtualization essentially concentrates the activities of multiple individual servers on one piece of hardware.

The central data center is currently served by computer room air handlers (CRAHs) that are supplied by the facility’s chilled water supply from its two 30-year-old 500-ton centrifugal chillers. The ESCO proposes to replace the two chillers with three: a 150-ton chiller and water-side economizer devoted exclusively to the data center, along with 250- and 400-ton centrifugals dedicated to the general building load (though still connected to the data center in the event of a breakdown in the dedicated cooling system). This will allow the building’s main chilled water system to be shut down for at least 8-10 hours each day, as well as on most weekends, while the 150-ton machine and its associated economizer can operate exclusively to serve the data center, generating much warmer chilled water (since dehumidification is unnecessary and temperature requirements are much looser with improved air management in the data center). The new configura tion will allow the retirement of numerous direct expansion computer room air conditioners (CRACs) in the small, dispersed data centers and server closets.

Savings from O&M (not to mention energy) are difficult to estimate for this project, but the two parties, using both published industry standards and site records, are able to reach agreement. This has included the government facilities customer having to reach out to individual departments to negotiate budget concessions in exchange for expected reductions in both computing and cooling equipment in the dispersed data centers and closets. While the site agrees to credit $30,000 of contracted labor for the reduction of a servicing expense on the CRACs, much of the savings comes not from labor but from the reduction in purchases of new servers and other data center equipment (including CRACs), given the consolidation and virtualization.

Table 8: Annual Cost Savings for Materials (R&R) and Contract Labor from Data Center Retrofit ECM Equipment or Labor F i ndi ngs/Assumpti ons
Exi sti ng Cost
(Annual )
Performance Peri od Cost
(Annual )
Dispersed CRAC
units
50 units averaging 5 tons each; 4 units
added/replaced per year $75,000 $0
CRAC unit servicing Non-warrantee service calls have cost an avg. of $32,000/yr. over previous 5
years.
$30,000 $0
Dispersed and
central data center
servers
100  40 physical servers with “refresh”
rate of four years, so 25  10 new per
year @ avg. cost of $6,000/unit
$150,000 $60,000
Data center power
supply equipment
and labor (UPSs,
batteries, etc.)
Two 10 kW UPSs (avg.) per 20 distributed
data center/server closets. UPSs @
$50/kW-yr. No incremental UPS costs in
central data center after ESPC.
$20,000 $0
TOTAL $275,000 $60,000
This project, including the consolidation of the distributed data centers and server closets in the building, will save a great deal of energy, from various sources:
 Elimination of the dispersed CRACs
 Downsizing of the computing and associated data center equipment throughout the building  Right-sizing of the data center cooling equipment (including a better ability to scale to reduced loads,

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 15
including through use of the water-side economization); and, indirectly  Right-sizing and staging of the cooling system for the remainder of the building, and the ability to turn that system off for at least 8-10 hours per day when the building is unoccupied (since the data center will now have a dedicated cooling system of its own).

But the individual ECM’s economics, as well as those of the overall ESPC, are made much more viable by the $215,000 of O&M (including repair and replacement) savings generated, shrinking the project term from 18 to 16 years. By closely evaluating key information sources at its disposal – primarily its own records – the government customer is able to comfortably agree to these savings and save itself considerable money in interest payments over the term (since the same project paid off more quickly accrues less interest).

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Example Scenarios 16
6 Lessons Learned
Some lessons learned from actual projects provide some key points to keep in mind. Again, the key test regarding documentation is whether a customer staff-person who has not been involved in the development of the project, or an outside auditor, can understand and accept the savings calculations at any time during the project performance period.
• A customer’s decision to commit funds from future years’ O&M budgets towards ESPC project payments has a long-term impact and must be documented adequately for future staff in both the M&V plan and the annual reports. Information should include why a specific method was chosen, what data were available and used, how cost savings were determined, and what method will be used to verify them during the performance period.
• Operations and maintenance budget baselines should not be based on what the customer site should be spending for proper O&M; rather, baseline expenditures should be based on what the customer is spending (and would likely be spending into the future). The O&M expenditures after implementation need to decrease for savings to be considered real. • Customers should maintain thorough O&M cost records that will be needed to document baseline O&M costs. These records should be included in the ESPC proposal. • ESCOs should include detailed information in M&V reports to clearly convey the source of O&M savings as well as sufficient data to verify any savings calculations performed. Ideally, these records should be stored in an electronic format also available to the customer (such as eProject Builder4, a free publicly available tool).

O&M savings are very legitimate in many ESPCs. As long as there are true budgetary s avings that accrue, these are a very valuable source for helping to fund ESPCs. This is particularly true where ESPC customers are trying to integrate long-payback ECMs that can have the effect of lengthening the term of the ESPC beyond an acceptable (and sometimes legally permissible) duration. However, O&M savings claims in ESPCs can easily have an appearance of impropriety, whether legitimate or not. Consequently, both customers and ESCOs need to take great care in making sure to carefully document them for future review by parties that were not part of the original project.

4 eprojectbuilder.lbl.gov

HOW TO DETERMINE AND VERIFY OPERATING AND MAINTENANCE SAVINGS IN ESPCS Appendix 1 17
Appendix 1: Federal-Specific References
Federal Regulation
10 CFR § 436.31
“Energy cost savings means a reduction in the cost of energy and related operation and maintenance expenses, from a base cost established through a methodology set forth in an energy savings performance contract, utilized in an existing federally owned building or buildings or other federally owned facilities as a result of –
(1) The lease or purchase of operating equipment, improvements, altered operation and maintenance, or technical services, or…”
Federal Cost Schedules
O&M and R&R savings and costs are found in two places in the financial schedules for a DOE IDIQ or Army Corps MATOC ESPC project: performance-period ESCO expenses in Schedule 3, and first year energy and cost savings by ECM in Schedule 4.

Schedule 3 — Performance-Period Cash Flow
Schedule 3 presents the cash flow for the ESPC project and includes the details of all performance-period expenses incurred by the ESCO over the course of the project.

Performance-period expenses are delineated by contract year in the following line items:

Management/Administration; Operation; Maintenance; Repair and Replacement; Measurement and Verification; Permits and Licenses; Insurance; and Property Taxes.

Schedule 3 shows all performance-period costs incurred by the ESCO, whereas baselines and savings are found in Schedule 4.

Schedule 4 — First Year Energy and Cost Savings by ECM
Schedule 4 presents a summary of the estimated annual cost savings that will be achieved by each of the ECMs included in an ESPC project. This schedule documents the changes in costs to the customer during the first year. Costs for subsequent contract years can be determined by applying the appropriate escalation rates, if used.

First year savings (or increase in use or costs) due to each ECM are quantified for all energy and commodity sources along with their individual cost impacts. Line items for each ECM include electric energy savings, electric cost savings, demand savings, demand cost savings, other energy-related and O&M cost savings, and others. Savings in this table are positive, while additional costs are recorded as negative values.

DOE/EE-1763 ▪ March 2018
For more information, visit:
energy.gov/eere/femp

PRESS RELEASE
Government Contractor Admits Scheme
to Inflate Costs on Federal Projects and
Pays $11 Million to Resolve Criminal
and Civil Probes
Monday, December 21, 2020 For Immediate Release
Office of Public Affairs
Schneider Electric Buildings Americas Inc. (Schneider Electric), a nationwide provider of electricity solutions for buildings and data centers with its principal place of business in Carrollton, Texas, will pay $11 million to resolve criminal and civil investigations relating to kickbacks and overcharges on eight federally-funded energy savings performance contracts (ESPCs), the Department of Justice announced today. Under the contracts, Schneider Electric was to install a variety of energy savings upgrades, such as solar panels, LED lighting, and insulation, in federal buildings.

As part of the criminal resolution with the U.S. Attorney’s Office for the District of Vermont (USAOVT), Schneider Electric admitted that it fraudulently charged the government nearly $1.7 million in design costs incurred on three ESPCs funded by the Department of the Navy (DON), General Services Administration (GSA), and Department of Agriculture (USDA) by disguising those costs and spreading them across un-related pricing components. Schneider Electric employees described this process as “burying” or “hiding” the costs. Schneider Electric specifically spread costs across various line items in these federal projects so that the agencies would pay the amounts without knowing they were design costs that Schneider Electric was 1/13/25, 11:48 AM Office of Public Affairs | Government Contractor Admits Scheme to Inflate Costs on Federal Projects and Pays $11 Million to Resol… https://www.justice.gov/opa/pr/government-contractor-admits-scheme-inflate-costs-federal-projects-and-pays-11-million 1/5 prohibited from charging the government. Schneider Electric admitted that its conduct constituted wire fraud in violation of 18 U.S.C. § 1343. Schneider Electric executed a nonprosecution agreement related to this conduct and agreed to pay nearly $1.7 million in criminal forfeiture.

Schneider Electric further admitted that former convicted Senior Project Manager Bhaskar Patel solicited and received over $2.5 million in kickbacks from various subcontractors who worked on ESPCs issued by the DON, Coast Guard, GSA, USDA, and Department of Veterans Affairs (VA). Schneider Electric admitted that this conduct violated the Anti-Kickback Act, 41 U.S.C. § 8707.

Schneider Electric is required by its agreement with the USAOVT to cooperate fully in any and all matters relating to relevant conduct for a period of three years, to report to the USAOVT any evidence or allegation of a violation of U.S. fraud, anti-corruption, procurement integrity, or antikickback laws, to implement and comply with an updated corporate compliance program, and to report annually to the USAOVT on its remediation and implementation of its required compliance enhancements.

In the separate civil settlement announced today, Schneider Electric agreed to pay $9.3 million to resolve False Claims Act and Anti-Kickback Act liability for Patel’s kickback scheme and for including inflated estimates and improper costs in proposals, and overcharging federal agencies, under the eight ESPCs.
“ESPC projects can only be successful where contractors are forthright and honest with federal agencies,” said Acting Attorney General Jeffrey Bossert Clark of the Justice Department’s Civil Division. “We will not tolerate attempts by contractors to mislead the government and line their own pockets at the expense of the very energy savings the government seeks to achieve.” “These cases are complex and challenging, and I commend the dogged work of our Assistant U.S. Attorneys and their law enforcement agency partners to ensure that Schneider Electric’s conduct was brought to light and it was held to account,” said U.S. Attorney Christina E. Nolan. “I am proud that our small office not only successfully convicted Bhaskar Patel but went further and unraveled Schneider Electric’s broader criminal scheme of fraudulently inflating costs to boost its profits and steal from taxpayers. In reaching this resolution, we considered that Schneider Electric terminated two employees involved in the schemes and overhauled its compliance program. We also considered the shortcomings of Schneider Electric’s cooperation and its failure to timely accept responsibility.”
“Fraud is not a victimless crime,” said Michael Wiest, Special Agent in Charge of the Northeast Field Office of the Naval Criminal Investigative Service (NCIS). “It steals money from American taxpayers, damages the integrity of the Department of the Navy procurement process, degrades the readiness of the warfighter by compromising the quality of goods and services 1/13/25, 11:48 AM Office of Public Affairs | Government Contractor Admits Scheme to Inflate Costs on Federal Projects and Pays $11 Million to Resol… https://www.justice.gov/opa/pr/government-contractor-admits-scheme-inflate-costs-federal-projects-and-pays-11-million 2/5 used to protect the nation, and squanders more money in the funding of criminal investigations which could have been avoided simply by individuals doing the right thing. NCIS will continue to work with our partner agencies to aggressively pursue those who perpetrate financial crimes.” “Participation in Government contracts should not involve contractors and their employees seeking financial gain to the detriment of the U.S. Government,” said USDA Office of Inspector General (OIG) Special Agent-in-Charge Bethanne M. Dinkins. “Thanks to the hard work and tireless efforts of the investigative team, the interests and integrity of the United States and the procurement process throughout the government have been protected. The USDA Office of Inspector General appreciates the commitment of the Department of Justice and the cooperative efforts of our law enforcement partners. Our resources are well utilized when we work together to investigate those who unlawfully solicit and accept bribes and kickbacks and overcharge the U.S. Government. This resolution demonstrates that we are committed to holding contractors accountable when they choose to abuse the integrity of vital government programs designed to significantly reduce energy and operating costs and make progress toward meeting federal sustainability goals.”
“The GSA Office of Inspector General is committed to protecting the integrity of the GSA’s procurement process and programs,” said Joseph Dattoria, GSA-OIG Special Agent in Charge. “This resolution is a testament to that commitment and should serve as a warning to other contractors who may consider engaging in similar conduct. We appreciate the collaborative efforts of the DOJ and our other law enforcement partners.” “VA OIG is committed to protecting the integrity of energy savings performance contracts awarded by VA and other federal agencies,” said VA OIG Special Agent in Charge Christopher Algieri, Northeast Field Office. “We appreciate the tireless efforts of the United States Attorney’s Office, the Civil Division, and our other law enforcement partners in rooting out this and other procurement fraud.”
The United States Attorney’s Office for the District of Vermont handled the criminal investigation and resolution. The civil investigation was jointly handled by the District of Vermont and the Civil Division’s Commercial Litigation Branch (Fraud Section). The investigation was supported by the Offices of Inspector General for the VA, USDA and GSA, and the NCIS.

Except for the conduct admitted in connection with the criminal resolution, the civil claims resolved by the settlement are allegations only, and there has been no determination of liability as to such civil claims.

Updated January 5, 2021
1/13/25, 11:48 AM Office of Public Affairs | Government Contractor Admits Scheme to Inflate Costs on Federal Projects and Pays $11 Million to Resol… https://www.justice.gov/opa/pr/government-contractor-admits-scheme-inflate-costs-federal-projects-and-pays-11-million 3/5 Attachment
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FALSE CLAIMS ACT
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Civil Division
Press Release Number: 20-1379

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STATE OF CALIFORNIA

FAIR POLITICAL PRACTICES COMMISSION
1102 Q Street• Suite 3000 • Sacramento, CA 95811
(916) 322-5660 • Fax (916) 322-0886
Daniel G. Sodergren
City Attorney
P. 0. Box 520
Pleasanton, CA 94566-0802
Re: Your Request for Advice
Our File No. A-19-057
Dear Mr. Sodergren:

May 22, 2019
This letter responds to your request for advice on behalf of the City of Pleasanton regarding the conflict of interest provisions of Government Code section 1090. Please note that we are not a finder of fact when rendering advice (In re Oglesby (1975) 1 FPPC Ops. 71), and any advice we provide assumes your facts are complete and accurate. If this is not the case or if the facts underlying these decisions should change, you should contact us for additional advice.

Regarding our advice on Section 1090, we are required to forward your request and all pertinent facts relating to the request to the Attorney General's Office and the Alameda County District Attorney's Office, which we have done. (Section 1097.l(c)(3).) We did not receive a written response from either entity. (Section 1097.l(c)(4).) We are also required to advise you that, for purposes of Section 1090, the following advice "is not admissible in a criminal proceeding against any individual other than the requestor." (See Section 1097. l(c)(5).)

QUESTION
Does Section 1090 prohibit the City of Pleasanton from entering into an energy services contract with the company that established the contract's scope of work as well as terms and conditions related to the implementation of the scope of work through its performance of services under a previous contract?

CONCLUSION
Yes. Section 1090 would prohibit the City from entering into the energy services contract with the company that established the contract's scope of work as well as terms and conditions related to the implementation of the scope of work through its performance of services under a previous contract.

FACTS
File No. A-19-057
Page No. 2
Government Code sections 4217 .10 - 4217 .18 establishes the Energy Conservation Law, a process for public agencies to develop energy conservation, cogeneration, and alternate energy supply projects at public facilities. 1 Under the authority set forth in the Energy Conservation Law, the City is interested in completing various energy conservation projects at some of its City facilities. Although not required to do so, the City invited certain qualified energy services companies to conduct preliminary assessments and submit proposals.

The City is considering two contracts with Syserco Inc., one of the energy services companies that submitted a proposal.

The first contract would be for: 1) the preparation of a detailed scope of work and firm-fixed implementation price for the proposed installation of energy/utility efficiency equipment; 2) the calculated cost savings as a result of implementing the scope of work; 3) a schedule for implementation of the project; and 4) terms and conditions related to the implementation of the scope of work.

The second contract would incorporate the scope of work and information produced as a result of the first contract and would be for: 1) engineering; 2) procurement; 3) installation; 4) construction; and 5) training services.

If the City enters into the first contract, it would not be legally obligated to enter into the second contract.

Fresno Unified School District (2015) 237 Cal.App.4th 261, 300.) The purpose behind this inclusiveness of the definition is to ensure that independent contractors who are essentially performing a public function, though temporarily, provide the same "fealty expected from permanent officers and employees." (46 Ops.Cal.Atty.Gen 74 (1965).) In Hub City, the court stated that a person's status as an official under Section 1090 "turns on the extent to which the person influences an agency's contracting decisions or otherwise acts in a capacity that demands the public trust." (Hub City, supra, 186 Cal.App.4th at p. 1125.) Most recently in Sahlolbei, the California Supreme Court concluded that Section 1090' s reference to "officers" applies to "outside advisors with responsibilities for public contracting similar to those belonging to formal officers" (Id. at p. 237), and held that not all independent contractors are covered by Section 1090 - liability extends only to independent contractors who can be said to have been entrusted with "transact[ing] on behalf of the Government" (Id. at p. 240 quoting Stigall, supra, 58 Cal.2d at 570.)
With respect to making a contract, Section 1090 reaches beyond the officials who participate personally in the actual execution of the contract to capture those officials who participate in any way in the making of the contract. (People v. Sobel (1974) 40 Cal.App.3d 1046, 1052.) Therefore, participation in the making of a contract is defined broadly as any act involving preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans and specifications, and solicitation for bids. (Millbrae Assn. for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 222, 237.)
Here, the first prospective contract would require Syserco to prepare the following: a detailed scope of work and firm-fixed implementation price for the proposed installation of energy/utility efficiency equipment; the calculated cost savings as a result of implementing the scope of work; a schedule for implementation of the project; and terms and conditions related to the implementation of the scope of work. The second contract would then incorporate the scope of work and information Syserco prepared under the first contract and would require it to perform engineering, procurement, installation, construction and training services.

As proposed, Syserco will be developing and drafting the scope of work on the City's behalf that will establish the entire basis of the second contract. Based on the facts provided, Syserco would be subject to Section 1090 because, as a consultant under the initial contract, it would have responsibilities for public contracting similar to those belonging to the City's formal officers. These responsibilities include preparing items such as a detailed scope of work and schedule for File No. A~ 19-057
Page No. 4
implementing the scope of work to be incorporated the second contract. The City would thus be entrusting Syserco to transact on its behalf. Moreover, based on these same facts, Syserco would directly participate in the making of the second contract through its performance of services under the first contract.

Accordingly, Section 1090 would prohibit the City from entering the second contract with Syserco where, as a consultant to the City under the first contract, Syserco established the second c.ontract's scope of work as well as terms and conditions related to the implementation of the scope ofwork.2
If you have other questions on this matter, please contact me at (916) 322-5660.

By:

JW:aja
Sincerely,
Dave Bainbridge
General Counsel
2 We note that you have also asked whether provisions of the Energy Conservation Law create any exceptions to Section 1090. While we cannot opine as to the provisions of the Energy Conservation Law, we find no such exceptions within the provisions of Section 1090.

STATE OF CALIFORNIA

FAIR POLITICAL PRACTICES COMMISSION
1102 Q Street • Suite 3000 • Sacramento, CA 95811
(916) 322-5660 • Fax (916) 322-0886
April 13, 2020
Daniel G. Sodergren
City Attorney
City of Pleasanton
PO Box 520
Pleasanton, CA 94566-0802
Re: Your Request for Advice
Our File No. A-20-042
Dear Mr. Sodergren:

This letter responds to your supplemental request for advice on behalf of the City of Pleasanton regarding the conflict of interest provisions of Government Code section 1090. Please note that we are not a finder of fact when rendering advice (In re Oglesby (1975) 1 FPPC Ops. 71), and any advice we provide assumes your facts are complete and accurate. If this is not the case or if the facts underlying these decisions change, then you should contact us for additional advice.

Regarding our advice on Section 1090, we are required to forward your request and all pertinent facts relating to the request to the Attorney General’s Office and the Alameda County District Attorney’s Office, which we have done. (Section 1097.1(c)(3).) We did not receive a written response from either entity. (Section 1097.1(c)(4).) We are also required to advise you that, for purposes of Section 1090, the following advice “is not admissible in a criminal proceeding against any individual other than the requestor.” (See Section 1097.1(c)(5).)

SUPPLEMENTAL REQUEST AND FACTS
You are the City Attorney for the City of Pleasanton seeking supplemental advice on its behalf. In March of 2019, you asked whether the City would be able enter into two separate contracts with an energy services company, Syserco, Inc., to design and implement the City’s energy conservation project. The issue was whether Section 1090 would prohibit the City from entering into an energy services contract with the same company that established the contract’s scope of work through performance of services under a previous contract with the City. The Commission advised that Section 1090 would prohibit the City from entering into the subsequent contract with the same company. (See Sodergren Advice Letter No. A-19-057.) You now ask whether the additional information you have provided below concerning Public Utilities Code section 388, and selection of Syserco into a qualified pool of energy service companies for the delivery of energy efficiency projects, changes the conclusion in the prior advice.

File No. A-20-042
Page No. 2
As provided in your initial request, Government Code sections 4217.10 – 4217.18 establish a process for public agencies to develop energy conservation, cogeneration, and alternate energy supply projects at public facilities (“Energy Conservation Law”). Government Code section 4217.16 provides:

Prior to awarding or entering into an agreement or lease, the public agency may request proposals from qualified persons. After evaluating the proposals, the public agency may award the contract on the basis of the experience of the contractor, the type of technology employed by the contractor, the cost to the local agency, and any other relevant considerations. The public agency may utilize the pool of qualified energy service companies established pursuant to Section 388 of the Public Utilities Code and the procedures contained in that section in awarding the contract.
(Emphasis added by your advice request.)
Public Utilities Code section 388 provides:
(a) Notwithstanding any other provision of law, a state agency may enter into an energy savings contract with a qualified energy service company for the purchase or exchange of thermal or electrical energy or water, or to acquire energy efficiency or water conservation services, or both energy efficiency and water conservation services for a term not exceeding 35 years, at rates and upon those terms approved by the agency.
(b) The Department of General Services or any other state or local agency intending to enter into an energy savings contract or a contract for an energy retrofit project may establish a pool of qualified energy service companies based on qualifications, experience, pricing, or other pertinent factors. Energy service contracts for individual projects undertaken by any state or local agency may be awarded through a competitive selection process to individuals or firms identified in the pool. The pool of qualified energy service companies and contractors shall be reestablished at least every two years or shall expire.
(c) For purposes of this section, the following definitions apply:
(1) (A) “Energy retrofit project” means a project for which the state or local agency works with a qualified energy service company to identify, develop, design and implement energy conservation measures in existing facilities to reduce energy or water use or make more efficient use of energy or water.
(Emphasis added by your advice request.)
File No. A-20-042
Page No. 3
On March 5, 2019, the California Department of General Services issued a request for qualifications to establish a qualified pool of energy service companies (ESCO) for the delivery of energy efficiency projects statewide. Based on the request for proposals, Syserco successfully qualified for admittance into the Department of General Services ESCO pool on May 16, 2019. As mentioned, the City is interested in possibly entering into two contracts with Syserco to design and implement the City’s energy conservation project.

ANALYSIS AND CONCLUSION
In the Sodergren Advice Letter, supra, we noted that courts have long found that independent contractors serving in advisory positions that have a potential to exert considerable influence over the contracting decisions of a public agency are subject to Section 1090. (Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114, 1124-1125.) We further explained that liability in the first instance under Section 1090 extends only to independent contractors who can be said to have been entrusted with “transact[ing] on behalf of the Government” (Id. at p. 240 quoting Stigall, supra, 58 Cal.2d at p. 570), and that participation in the making of a contract is defined broadly as any act involving preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans and specifications, and solicitation for bids. (Millbrae Assn. for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 222, 237.) Based on those provisions, we found that Section 1090 would prohibit the City from entering into a second contract with Syserco where it had previously established the contract’s scope of work through services performed pursuant to the first contract with the City. Our conclusion does not change based on the new information you have provided.

You state that Public Contract Code section 388 appears to suggest that the City, or any local agency, may contract with one energy services company to both design and implement an energy retrofit project. We agree that the statute appears to permit the City to contract with one company to provide both design and implementation services when those services are contained in a single contract. However, we do not agree that the statutes you reference provide an exception to Section 1090, express or implied, to permit the City to enter two separate contracts with Syserco where the subsequent contract’s scope of work would be established through services performed under the initial contract.

File No. A-20-042
Page No. 4
If you have other questions on this matter, please contact me at (916) 322-5660.

Sincerely,
Dave Bainbridge
General Counsel
By: Jack Woodside
Jack Woodside
Senior Counsel, Legal Division
JW:aja

STATE OF CALIFORNIA

FAIR POLITICAL PRACTICES COMMISSION
1102 Q Street • Suite 3000 • Sacramento, CA 95811
(916) 322-5660 • Fax (916) 322-0886
December 18, 2020
Joshua K. Clendenin
Senior Assistant City Attorney
City of Concord
1950 Parkside Drive
Concord, CA 94549
Re: Your Request for Advice
Our File No. A-20-143
Dear Mr. Clendenin:

This letter responds to your request for advice regarding Government Code Section 1090, et seq.1 Please note that we are only providing advice under Section 1090, not under other general conflict of interest prohibitions such as common law conflict of interest, including Public Contract Code.

Also, note that we are not a finder of fact when rendering advice (In re Oglesby (1975) 1 FPPC Ops. 71), and any advice we provide assumes your facts are complete and accurate. If this is not the case or if the facts underlying these decisions should change, you should contact us for additional advice.

We are required to forward your request regarding Section 1090 and all pertinent facts relating to the request to the Attorney General’s Office and the Contra Costa County District Attorney’s Office, which we have done. (Section 1097.1(c)(3).) We did not receive a written response from either entity. (Section 1097.1(c)(4).) We are also required to advise you that, for purposes of Section 1090, the following advice “is not admissible in a criminal proceeding against any individual other than the requestor.” (See Section 1097.1(c)(5).)

QUESTION
Does Section 1090 prohibit the City of Concord from entering into an energy services contract with a company to develop energy related improvement options and then perform the work, but only after the contract is amended to reflect the actual work the City authorizes the company to perform?
1 The Political Reform Act is contained in Government Code Sections 81000 through 91014. All statutory references are to the Government Code, unless otherwise indicated. The regulations of the Fair Political Practices Commission are contained in Sections 18110 through 18997 of Title 2 of the California Code of Regulations. All regulatory references are to Title 2, Division 6 of the California Code of Regulations, unless otherwise indicated.

File No. A-20-143
Page No. 2

CONCLUSION
Yes. Although Section 1090 would not prohibit the City from entering into a single contract with the company to develop energy related improvement options and then to perform the work, it would prohibit the City from amending the contract after considering the options in order to select the actual work it authorizes the company to perform in light of the company’s involvement in determining the scope of work under the initial contract.

FACTS AS PRESENTED BY REQUESTER
You are a Senior Assistant City Attorney seeking Section 1090 advice on behalf of the City concerning a potential energy services contract. Chapter 3.2 of Division 5 of Title 1 of the Government Code (Sections 4217.10 - 4217.18) establishes a process for public agencies to develop energy conservation, cogeneration, and alternate energy supply projects at public facilities. Section 4217.12, which relates to energy service contracts, provides:
(a) Notwithstanding any other provision of law, a public agency may enter into an energy service contract and any necessarily related facility ground lease on terms that its governing body determines are in the best interests of the public agency if the determination is made at a regularly scheduled public hearing, public notice of which is given at least two weeks in advance, and if the governing body finds:
(1) That the anticipated cost. to the public agency for thermal or electrical energy or conservation services provided by the energy conservation facility under the contract will be less than the anticipated marginal cost to the public agency of thermal, electrical, or other energy that would have been consumed by the public agency in the absence of those purchases.
(2) That the difference, if any, between the fair rental value for the real property subject to the facility ground lease and the agreed rent, is anticipated to be offset by below-market energy purchases or other benefits provided under the energy service contract.
(b) State agency heads may make these findings without holding a public hearing.

Government Code Section 4217.16 provides:

Public Utilities Code Section 388 provides:
(a) Notwithstanding any other provision of law, a state agency may enter into an energy savings contract with a qualified energy service company for the purchase or exchange of thermal or electrical energy or water, or to acquire energy efficiency or water conservation services, or both energy efficiency and water conservation services for a term not exceeding 35 years, at rates and upon those terms approved by the agency.
(b) The Department of General Services or any other state or local agency intending to enter into an energy savings contract or a contract for an energy retrofit project may establish a pool of qualified energy service companies based on qualifications, experience, pricing, or other pertinent factors. Energy service contracts for individual projects undertaken by any state or local agency may be awarded through a competitive selection process to individuals or firms identified in the pool. The pool of qualified energy service companies and contractors shall be reestablished at least every two years or shall expire.

The City is interested in entering into a single contract with a company whereby the company will provide an Energy Efficiency Program including both project development and installation services described in Phase 1 and Phase 2 of the contract. In Phase 1, the company will develop energy related improvement options for the City. In Phase 2, the company will implement specific options that it developed in Phase 1, and the City has the sole authority to include or exclude any of the specific options. Therefore, the contract between the City and the company will have to be amended following Phase 1 to allow for the inclusion of the options the City chooses for Phase 2.

ANALYSIS
Section 1090 generally prohibits public officers, while acting in their official capacities, from making contracts in which they are financially interested. Section 1090 is concerned with financial interests, other than remote or minimal interests, that prevent public officials from exercising absolute loyalty and undivided allegiance in furthering the best interests of their agencies. (Stigall v. Taft (1962) 58 Cal.2d 565, 569.) Under Section 1090, “the prohibited act is the making of a contract in which the official has a financial interest.” (People v. Honig (1996) 48 Cal.App.4th 289, 333.) A contract that violates Section 1090 is void. (Thomson v. Call (1985) 38 Cal.3d 633, 646.)
File No. A-20-143
Page No. 4
Section 1090 provides, in part, that “[m]embers of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.” Independent contractors
Courts have long found that independent contractors that serve in advisory positions that have a potential to exert considerable influence over the contracting decisions of a public agency are subject to Section 1090. (See Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114, 1124-1125; Schaefer v. Berinstein (1956) 140 Cal.App.2d 278, 291 [“statutes prohibiting personal interests of public officers in public contracts are strictly enforced. [Citation.] ... [¶] A person merely in an advisory position to a city is affected by the conflicts of interest rule”].) Importantly, however, the California Supreme Court recently clarified the standard used to determine whether an independent contractor is subject to Section 1090 in the first instance. (People v. Superior Court (Sahlolbei) (2017) 3 Cal.5th 230.) There, it held that Section 1090’s reference to “officers” applies to “outside advisors [independent contractors, including corporate consultants] with responsibilities for public contracting similar to those belonging to formal officers.” (Id. at p. 237.) In other words, Section 1090 does not cover all independent contractors – only those who are “entrusted with ‘transact[ing] on behalf of the Government.’” (Id. at p. 240 quoting Stigall, supra, 58 Cal.2d at p. 570.)
With respect to the same energy services statutory scheme above, the Commission previously advised that Section 1090 prohibited the City of Pleasanton from entering into an energy services contract with the company that established the contract’s scope of work as well as terms and conditions related to the implementation of the scope of work through its performance of services in a previous contract with the City. (Sodergren Advice Letter, No. No. A-19-057.) In subsequent advice, the Commission further advised that although Public Contract Code section 388 appears to permit the City of Pleasanton to contract with one energy services company to both design and implement an energy retrofit project when those services are contained in a single contract, Section 1090 prohibits the City from entering two separate contracts with the same energy services company where the subsequent contract’s scope of work would be established through services performed under the initial contract. (Sodergren Advice Letter, No. No. A-20-042.) In light of that advice, you ask whether Section 1090 would prohibit the City from entering into an energy services contract with a company whereby the company determines the potential scope of work for the energy services contract and then performs the work that the City selects, but only after the contract is amended to reflect the actual work the City authorizes the company to perform. As our previous advice implies, Section 1090 would not prohibit the City from contracting with a company to both determine the scope of work and then perform the work so long as all of the contemplated services are contained in a single contract.

Here, however, you state the contract would need to be amended after the company provides options for the scope of work to reflect the actual work the City authorizes the company to perform.

A decision to modify, extend, or renegotiate a contract constitutes involvement in the making of a contract under section 1090. (See, e.g., City of Imperial Beach v. Bailey (1980) 103 Cal.App.3d File No. A-20-143
Page No. 5
191, 193; see also 98 Ops.Cal.Atty.Gen. 102 (2015) [“It is well settled that changes to existing contracts are themselves ‘contracts’ under section 1090”].) Under the facts provided, you indicate the City’s initial contract would provide the company with duties to determine the scope of work for the amended energy services contract. Because the company would have responsibilities requiring that it be involved in the City’s contracting process at this preliminary stage, it would be subject to Section 1090’s conflict of interest provisions.

Moreover, because the company would determine the scope of work that is eventually selected by the City to be performed in the amended contract, it would be participating in the making of the amended contract through services it provides under the initial contract.

Therefore, similar to the advice provided in the Sodergren Advice Letters, supra, Section 1090 would prohibit the City from entering two separate contracts with the same energy services company where the scope of work in the subsequent amended contract would be established through services performed under the initial contract.
2 Accordingly, Section 1090 prohibits the City from entering into a contract with a company to develop energy related improvement options and then to perform the work, but only after the contract is amended to reflect the actual work the City authorizes the company to perform.

If you have other questions on this matter, please contact me at (916) 322-5660.

Sincerely,
Dave Bainbridge
General Counsel
By: Jack Woodside
Jack Woodside
Senior Counsel, Legal Division
JW:aja
2 In addition, as we concluded in the second Sodergren Advice Letter, supra, “we do not find that the energy statutes referenced provide an exception to Section 1090, express or implied, to permit the City to enter two separate contracts with the same company where the subsequent contract’s scope of work would be established through services performed under the initial contract.”
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GOVERNMENT CODE - GOV
TITLE 1. GENERAL [100 - 7931.000] ( Title 1 enacted by Stats. 1943, Ch. 134. ) DIVISION 5. PUBLIC WORK AND PUBLIC PURCHASES [4000 - 4563] ( Division 5 enacted by Stats. 1943, Ch. 134. ) CHAPTER 3.2. Energy Conservation Contracts [4217.10 - 4217.19] ( Chapter 3.2 added by Stats. 1983, Ch. 868, Sec.

1. )
To help implement the policy set forth in Section 25008 of the Public Resources Code, and to extend that policy to facilities of local governments, public agencies may develop energy conservation, cogeneration, and alternate energy supply sources at the facilities of public agencies in accordance with this chapter. (Added by Stats. 1983, Ch. 868, Sec. 1.)
The following terms, whenever used in this chapter, have the meanings given in this section, except where the context clearly indicates otherwise:
(a) “Alternate energy equipment” means equipment for the production or conversion of energy from alternate sources as its primary fuel source, such as solar, biomass, wind, geothermal, hydroelectricity under 30 megawatts, remote natural gas of less than one billion cubic feet estimated reserves per mile from an existing gas gathering line, natural gas containing 850 or fewer British Thermal Units per standard cubic foot, or any other source of energy, the efficient use of which will reduce the use of fossil or nuclear fuels. (b) “Cogeneration equipment” means equipment for cogeneration, as defined in Section 216.6 of the Public Utilities Code.
(c) “Conservation measures” means equipment, maintenance, load management techniques and equipment, or other measures to reduce energy use or make for a more efficient use of energy. (d) “Conservation services” means the electrical, thermal, or other energy savings resulting from conservation measures, which shall be treated as a supply of such energy. (e) “Energy conservation facility” means alternate energy equipment, cogeneration equipment, or conservation measures located in public buildings or on land owned by public agencies. (f) “Energy service contract” means a contract entered into by a public agency with any person, pursuant to which the person will provide electrical or thermal energy or conservation services to a public agency from an energy conservation facility.
(g) “Facility financing contract” means a contract entered into by a public agency with any person whereby the person provides financing for an energy conservation facility in exchange for repayment of the financing and all costs and expenses related thereto by the public agency. A facility financing contract may provide for the person with whom the public agency contracts to provide any combination of feasibility studies for, and design and construction of, all or part of the energy conservation facility in addition to the financing and other related services, and may provide for an installment sale purchase, another form of purchase, or amortized lease of the energy conservation facility by the public agency.
(h) “Facility ground lease” means a lease of all, or any portion of, land or a public building owned by, or under lease to, a public agency to a person in conjunction with an energy service contract or a facility financing contract. A facility ground lease may include, in addition to the land on which energy conservation facilities will be located, easements, rights-of-way, licenses, and rights of access, for the construction, use, or ownership by the person of the facility and all related utility lines not owned or controlled by the interconnecting utility, and offsite improvements related thereto. A facility ground lease may also include the addition or improvement of utility lines and equipment owned by the interconnecting utility which are necessary to permit interconnection between that utility and an energy conservation facility.

Home Bill Information California Law Publications Other Resources My Subscriptions My Favorites 1/10/25, 3:40 PM Codes Display Text
https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=GOV&division=5.&title=1.&part=&chapter=3.2.&article= 1/3 4217.12.
4217.13.
4217.14.
4217.15.
4217.16.
(i) “Person” means, but is not limited to, any individual, company, corporation, partnership, limited liability company, public agency, association, proprietorship, trust, joint venture, or other entity or group of entities. (j) “Public agency” means the state, a county, city and county, city, district, community college district, school district, joint powers authority or other entity designated or created by a political subdivision relating to energy development projects, and any other political subdivision or public corporation in the state. (k) “Public building” includes any structure, building, facility, or work which a public agency is authorized to construct or use, and automobile parking lots, landscaping, and other facilities, including furnishings and equipment, incidental to the use of any structure, building, facility, or work, and also includes the site thereof, and any easements, rights-of-way appurtenant thereto, or necessary for its full use. (Amended by Stats. 2006, Ch. 198, Sec. 2. Effective January 1, 2007.) (a) Notwithstanding any other provision of law, a public agency may enter into an energy service contract and any necessarily related facility ground lease on terms that its governing body determines are in the best interests of the public agency if the determination is made at a regularly scheduled public hearing, public notice of which is given at least two weeks in advance, and if the governing body finds:
(1) That the anticipated cost to the public agency for thermal or electrical energy or conservation services provided by the energy conservation facility under the contract will be less than the anticipated marginal cost to the public agency of thermal, electrical, or other energy that would have been consumed by the public agency in the absence of those purchases.
(2) That the difference, if any, between the fair rental value for the real property subject to the facility ground lease and the agreed rent, is anticipated to be offset by below-market energy purchases or other benefits provided under the energy service contract.
(b) State agency heads may make these findings without holding a public hearing. (Amended by Stats. 1998, Ch. 328, Sec. 7. Effective August 21, 1998.) Notwithstanding any other provision of law, a public agency may enter into a facility financing contract and a facility ground lease on terms that its governing body determines are in the best interest of the public agency if the determination is made at a regularly scheduled public hearing, public notice of which is given at least two weeks in advance, and if the governing body finds that funds for the repayment of the financing or the cost of design, construction, and operation of the energy conservation facility, or both, as required by the contract, are projected to be available from revenues resulting from sales of electricity or thermal energy from the facility or from funding that otherwise would have been used for purchase of electrical, thermal, or other energy required by the public agency in the absence of the energy conservation facility, or both. State agency heads may make these findings without holding a public hearing.
(Amended by Stats. 1998, Ch. 328, Sec. 8. Effective August 21, 1998.) Notwithstanding any other provision of law, the public agency may enter into contracts for the sale of electricity, electrical generating capacity, or thermal energy produced by the energy conservation facility at such rates and on such terms as are approved by its governing body. Any such contract may provide for a commitment of firm electrical capacity.
(Added by Stats. 1983, Ch. 868, Sec. 1.)
The public agency may, but is not required to, base the findings required under Sections 4217.12 and 4217.13 on projections for electrical and thermal energy rates from the following sources:
(a) The public utility which provides thermal or electrical energy to the public agency. (b) The Public Utilities Commission.
(c) The State Energy Resources Conservation and Development Commission. (d) The projections used by the Department of General Services for evaluating the feasibility of energy conservation facilities at state facilities located within the same public utility service area as the public agency. (Added by Stats. 1983, Ch. 868, Sec. 1.)
Prior to awarding or entering into an agreement or lease, the public agency may request proposals from qualified persons. After evaluating the proposals, the public agency may award the contract on the basis of the 1/10/25, 3:40 PM Codes Display Text
https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=GOV&division=5.&title=1.&part=&chapter=3.2.&article= 2/3 4217.17.
4217.18.
4217.19.
experience of the contractor, the type of technology employed by the contractor, the cost to the local agency, and any other relevant considerations. The public agency may utilize the pool of qualified energy service companies established pursuant to Section 388 of the Public Utilities Code and the procedures contained in that section in awarding the contract.
(Amended by Stats. 1998, Ch. 328, Sec. 9. Effective August 21, 1998.) This chapter does not limit the authority of any public agency to construct energy conservation projects or to enter into other leases or contracts relating to the financing construction, operation, or use of alternate energy type facilities in any manner authorized under existing law. This chapter shall not be construed to abrogate Section 14671.6.
(Amended by Stats. 1998, Ch. 328, Sec. 10. Effective August 21, 1998.) The provisions of this chapter shall be construed to provide the greatest possible flexibility to public agencies in structuring agreements entered into hereunder so that economic benefits may be maximized and financing and other costs associated with the design and construction of alternate energy projects may be minimized. To this end, public agencies and the entities with whom they contract under this chapter should have great latitude in characterizing components of energy conservation facilities as personal or real property and in granting security interests in leasehold interests and components of the alternate energy facilities to project lenders.
(Added by Stats. 1983, Ch. 868, Sec. 1.)
The Tri-Valley-San Joaquin Valley Regional Rail Authority, as established in Chapter 8 (commencing with Section 132651) of Division 12.7 of the Public Utilities Code, in addition to the authority to enter into energy service contracts, facility financing contracts, and contracts for the sale of specified energy resources, as specified in Sections 4217.12 to 4217.14, inclusive, may enter into energy service contracts, facility financing contracts, and contracts for the sale of energy resources relating to green electrolytic hydrogen, as that term is defined in Section 400.2 of the Public Utilities Code, for use by the authority for purposes of financing the construction and operation of passenger rail service through the Altamont Pass Corridor. (Added by Stats. 2023, Ch. 410, Sec. 1. (SB 746) Effective January 1, 2024.) 1/10/25, 3:40 PM Codes Display Text
https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=GOV&division=5.&title=1.&part=&chapter=3.2.&article= 3/3 CITY COUNCIL AGENDA ITEM NO. F.2
01/14/2025
SUBJECT: Conduct a Public Hearing Making Certain Findings Pursuant To Government Code Section 4217.10 Et Seq. related to a Turnkey Design and Construction Energy Services Agreement for the Fleet Electrification Project, CIP Project No. 337-37265
DEPARTMENT: Public Works
STAFF: Casey Wichert, Director of Public Works
Scott Dempsey, Fleet/Facilities Maintenance Manager
Vatsal Patel, Engineering Manager

TITLE/RECOMMENDATION
Staff recommends the City Council conduct a public hearing making certain findings pursuant to Government Code Section 4217.10 et seq. related to a Turnkey Design and Construction Energy Services Agreement for the Fleet Electrification Project (“Project”), Capital Improvement Program (“CIP”) Project No. 337-37265.

FISCAL IMPACT
The City was awarded $3,218,000 in grant funding from the Bay Area Air Quality Management District (BAAQMD) for design and construction of electric vehicle charging infrastructure. If the action earlier on tonight’s consent agenda to approve execution of the grant agreement and amend the CIP Project budget was approved, this grant will provide funding for the Project.

This Project, prior to the approval of the grant agreement and amendment of the CIP Project budget, was included in the 2024/25 – 2028/29 CIP with a total Project budget of $1,350,000. The Project budget amendment in the previous action on tonight’s agenda would utilize the grant funding from BAAQMD to fund the entire Project and replace the existing Project funding sources.

Of the total project cost of $1,350,000, a total of $800,000 of funding had previously been allocated as follows:

Enterprise Funds $549,520
General Fund $250,480
Total Project Funding $800,000

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CITY COUNCIL AGENDA ITEM NO. F.2
01/14/2025
The original funding for the Project will be returned to the General Fund and Enterprise Funds in the amounts noted above and be available for expenditure on other costs or projects.

The increase in the Project budget from $1,350,000 to the amount of the grant, or $3,218,000, will be used to shorten the length of construction and expand the scope of the original Project.

BACKGROUND
In September 2020, the State of California (“State”), by Executive Order N-79-20, set the goal that 100 percent of in-state sales of new passenger cars and trucks will be zero-emission by 2035, as well as medium and heavy-duty trucks by 2045 for all operations where feasible. In November 2021, the State signed the Under2 Climate Coalitions Zero Emissions Vehicles (“ZEV”) Pledge for Public Fleets that sets aggressive goals to transition fleet composition where feasible to 100 percent for ZEV’s by 2030. These regulations necessitate the design and installation of charging stations and other related infrastructure at City facilities for the charging of electric or plug-in hybrid fleet vehicles.

Therefore, the City Council approved the Project as part of the adopted 2024/25 – 2028/29 Capital Improvement Program Budget.

In June 2024, BAAQMD began a grant funding program (“Grant”) through a competitive solicitation for electric charging infrastructure projects to support medium and heavy-duty on-road vehicles, off-road equipment, marine vessels, and locomotives.

The Grant was available for the installation of new, or the expansion of existing public and non-publicly accessible electric chargers and infrastructure as well as the installation and operation of permanent electric infrastructure (“Chargers”) to support the adoption of zero-emission vehicles and equipment within the Bay Area.

Staff submitted an application for the installation of new non-publicly accessible Chargers at the City’s Municipal Services Center (“MSC”) for fleet vehicles. BAAQMD approved the Project at its Board Meeting on December 4, 2024 and approved the award of incentive funding for the City’s project and authorized the Executive Officer to enter into an agreement with the City at its Board Meeting on December 11, 2024.

The staff report for the December 11, 2024 Board Meeting is herein attached.

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CITY COUNCIL AGENDA ITEM NO. F.2
01/14/2025
While the original Project was planned to phase in infrastructure with some charging stations installed in the first year and expand with additional charging stations in future years as electric vehicles become available and existing fleet is replaced.

However, staff is recommending amending the Project scope and budget to complete all improvements in two fiscal years as opposed the five year period that was previously proposed. With the $3,218,000 in funding awarded by BAAQMD, the Project would tentatively include all infrastructure needed for fifty (50) charging stations and a solar carport.

The City seeks to enter into a turnkey design and construction energy services agreement (“Agreement”) with Schneider Electric for the Project. Such an Agreement would include project scoping, grant finalization, design, and construction services aimed at improving energy efficiency, lowering operating costs, and reducing environmental impact. The Project is structured under the California Government Code Section 4217.10 et seq., which allows municipalities to engage in energy conservation projects when it is in the best interest of the City.

A public hearing notice was issued two weeks in advance of the City Council meeting on December 20, 2024, as required by Government Code Section 4217.12.

Key Phases of the Project:

Project Scoping/Grant Finalization/Design
Under a future agreement, Schneider Electric will conduct a thorough review of the Grant to confirm requested Project scope and funding still matches City’s goals.

Additionally, Schneider Electric will assist in looking for other funding sources which would allow the Project to include EV infrastructure at the Police Station, and create more savings and benefits.

Upon completion of the project scoping phase, Schneider Electric will submit a memo that outlines recommended energy conservation measures and associated cost savings projections.

Following the City’s approval of the final Project scope, Schneider Electric will proceed with the Project design. The design will include the preparation of detailed engineering plans, including specifications for the chargers and associated infrastructure.

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CITY COUNCIL AGENDA ITEM NO. F.2
01/14/2025
Schneider Electric will:
• Provide a design with several energy conservation options tailored to the City’s specific needs;
• Present energy-saving projections and financial payback analyses for each option; and
• Work closely with City staff to ensure designs align with operational goals and community priorities.

Construction Phase
Once the City approves the final design, the City will issue a Construction Notice to Proceed, authorizing Schneider Electric to initiate the construction phase of the Project.

Schneider Electric will install new clean energy systems, which may include:
• Electric Vehicle Charging Systems; and
• Installation of solar photovoltaic (PV) and battery systems to offset new electricity charges.

Schneider Electric will oversee all construction activities, ensuring minimal disruption to City operations. The construction will be scheduled and coordinated to avoid impacts on public services and facility use. Schneider Electric will also assist in closeout of the Project.

Projected Savings:

The projected savings come from switching from gas powered vehicles to EVs.

Electricity is naturally a more efficient fuel type than gasoline. PG&E offers favorable electricity rates for commercial fleets, as long as EV charging is not done during peak electricity usage, between 4:00 p.m. and 8:00 p.m. The City is planning to charge their EV fleet with the help of a Charge Management System, ensuring charging is done overnight during the off-peak hours. Additionally, EV charging will be offset by solar PV arrays, further reducing the associated electricity costs. EVs also have significantly less Operations & Maintenance (“O&M”) costs compared to Internal Combustion Engines (“ICE”).

California Government Code Section 4217.10-18 requires the Project cost must be paid from the associated Project savings over time. The attached Project Savings Findings confirm this requirement is met.

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CITY COUNCIL AGENDA ITEM NO. F.2
01/14/2025
Staff recommends adopting a Resolution making certain findings pursuant to Government Code Section 4217.10 et seq., related to a Turnkey Design and Construction Energy Services Agreement for the Project.

CITY COUNCIL STRATEGIC INITIATIVE
Not applicable.

PREVIOUS ACTION
Previous Action by the City Council is included on Attachment 1.

DATE OF NOTICE
December 20, 2024.

ENVIRONMENTAL DETERMINATION
Not Applicable.

ALTERNATIVE OPTION(S)

1. Do not approved the agreement.

2. Provide staff with alternate direction.

ATTACHMENT(S)

1. Previous Action

2. Resolution

3. Notice of Public Hearing

4. Project Savings Findings

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ATTACHMENT “1”
Previous actions related to this agenda item that were taken by the Council are listed below. To view prior actions and materials, and Brentwood Municipal Code references in the staff report, as applicable:
 Visit www.brentwoodca.gov/meetings, and select the meeting date(s) desired to see the reference materials and videos.
 Visit www.brentwoodca.gov/municipalcode to research references to the Brentwood Municipal Code and search by the code section(s) cited.

On May 28, 2024, by Resolution No. 2024-56, the City Council adopted the 2024/25 – 2028/29 Capital Improvement Program, which included the Project.

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RESOLUTION NO. 2025-XX

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

BRENTWOOD ADOPTING CERTAIN FINDINGS PURSUANT TO
GOVERNMENT CODE SECTION 4217.10 ET SEQ. RELATED TO A

TURNKEY DESIGN AND CONSTRUCTION ENERGY SERVICES

AGREEMENT FOR THE FLEET ELECTRIFICATION PROJECT, CIP
PROJECT NO. 337-37265.

WHEREAS, in September 2020, the State of California (“State”), by Executive Order N-79-20, set the goal that 100 percent of in-state sales of new passenger cars and trucks will be zero-emission by 2035, as well as medium and heavy-duty trucks by 2045 for all operations where feasible; and
WHEREAS, in November 2021, the State signed the Under2 Climate Coalitions Zero Emissions Vehicles (“ZEV”) Pledge for Public Fleets that sets aggressive goals to transition fleet composition where feasible to 100 percent for ZEV’s by 2030; and WHEREAS, these regulations necessitate the design and installation of charging stations and other related infrastructure at City facilities for the charging of electric or plug-in hybrid fleet vehicles; and
WHEREAS, the City Council approved the Project as part of the adopted 2024/25 – 2028/29 Capital Improvement Program Budget; and WHEREAS, in June 2024, BAAQMD began a grant funding program (“Grant”) through a competitive solicitation for electric charging infrastructure projects to support medium and heavy-duty on-road vehicles, off-road equipment, marine vessels, and locomotives; and
WHEREAS, staff submitted an application for the installation of new nonpublicly accessible Chargers at the City’s Municipal Services Center for fleet vehicles; and
WHEREAS, BAAQMD approved the Project at its Board Meeting on December 4, 2024 and approved the award of incentive funding for projects and authorized the Executive Officer to enter into agreement with applicant for projects at its Board Meeting on December 11, 2024; and
WHEREAS, the City seeks to enter into a turnkey design and construction energy services agreement (“Agreement”) with Schneider Electric for the Project; and
WHEREAS, this Agreement includes project scoping, grant finalization, design, and construction services aimed at improving energy efficiency, lowering operating costs, and reducing environmental impact; and

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Page 2 of 2 ends

WHEREAS, the Project is structured under the California Government Code Section 4217.10 et seq., which allows municipalities to engage in energy conservation projects when it is in the best interest of the City; and WHEREAS, a public hearing notice was issued two weeks in advance of the City Council meeting on December 20, 2024, as required by Government Code Section 4217.12; and
WHEREAS, pursuant to California Government Code Section 4217.12 and based on the Project Savings Findings, the City has determined that the Project will result in significant cost savings to the City and that the cost of the energy conservation measures of the Project will meet the requirements for overall energy savings required by these statues; and
WHEREAS, the Project Savings Findings, a copy of which is on file with the Public Works Department, demonstrates compliance with the requirements of Government Code section 4217.10, et seq., and is incorporated herein by this reference.

NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Brentwood does hereby resolve as follows:

1. The recitals above are true and correct.

2. This Resolution is adopted following a public hearing at a regularly scheduled meeting of the City Council for which a minimum of two weeks public notice has been duly given.

The City Council hereby finds that, pursuant to Government Code section 4217.12, that the anticipated cost to the City for the energy conservation services to be provided pursuant to the proposed turnkey design and construction energy services agreement for the Project will be less than the anticipated marginal cost to the City of the electrical or other energy that would have been consumed by the City in the absence of the Project.

PASSED, APPROVED AND ADOPTED by the City Council of the City of Brentwood at a regular meeting held on the 14th day of January 2025 by the following vote:

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60350.00009\40120187.1

NOTICE OF PUBLIC HEARING

FOR RESOLUTION ADOPTING CERTAIN FINDINGS AND APPROVING A

TURNKEY DESIGN AND CONSTRUCTION ENERGY SERVICES AGREEMENT WITH SCHNEIDER ELECTRIC BUILDING AMERICAS, INC. FOR THE PROPOSED FLEET ELECTRIFICATION PROJECT, CIP PROJECT NO. 337-37265.

NOTICE IS HEREBY GIVEN pursuant to Government Code section 4217.10 et seq. that the City of Brentwood ("City”) shall hold a public hearing at its regularly scheduled meeting on January 14, 2025, at 7:00 P.M. for the purpose of presenting certain findings, taking public comment, and approving a Resolution adopting the findings and authorizing the City Manager to execute a turnkey design and construction energy services agreement (“Agreement”) with Schneider Electric Building Americas, Inc. (“Schneider Electric”) to provide professional design and construction energy service such as, project scoping and grant finalization, design completion, and construction for the proposed Fleet Electrification Project, CIP Project No. 337-37265 (“Project”).

The City has already worked with the Schneider Electric to apply for and obtain an infrastructure grant from the Bay Area Air Quality Management District. Additionally, Schneider Electric has provided initial scoping and design services aimed at improving energy efficiency, lowering operating costs, and reducing environmental impact of the proposed Project as well as support the Government Code 4217.10 findings to be made as part of the Resolution. The Resolution will document how the cost to the City to develop, design, and construct the Project will be less than the anticipated marginal cost to the City of electrical or other energy that would have been consumed by the City if the improvements contemplated by the Project are not completed and the Agreement is not entered into by the City.

The public hearing shall be conducted on January 14, 2025 at 7:00 P.M. in the City’s Council Chamber located at:

City of Brentwood
City Hall
150 City Park Way
Brentwood, CA 94513

HOW TO VIEW AND PARTICIPATE
The public is invited to participate in the City Council meeting using any of the following methods:

1. IN PERSON:
a. Members of the public can provide in-person comments in the Council Chambers.

Members of the public are encouraged, but not required, to fill out a speaker card.

The Council Chambers will have seating available for members of the public to attend in person up to full seating capacity.

2. REMOTE:
a. Zoom: https://www.brentwoodca.gov/vcc or Zoom Webinar ID: 76013970037

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60350.00009\40120187.1

3. E-MAIL:
b. Zoom Phone Numbers. Dial Toll Free: (877) 853-5247 or (888) 788- 0099 or (833) 548- 0276. c. During the meeting, each period for public comment will be announced, and participants may use the “Raise Hand” feature on Zoom to request to speak. (If you need instructions on how to use this feature, please contact the City Clerk by noon of the meeting date at [email protected] or 925.516.5440.)
c. Public comments can also be submitted via e-mail to [email protected].

Any public comments received up until 3:00 p.m. of the meeting date will be:

1. distributed to the Council via email before the meeting,

2. posted online for public inspection at www.brentwoodca.gov/meetings and

3. later summarized in the meeting minutes.
d. As e-mails containing public meeting comments are part of the official record, note that personal contact information may be published if it is included with your e-mail.

4. TO WATCH OR LISTEN ONLY:
a. The public may view the meeting via one-way video feed by selecting the video option at the City Council Agendas’ link on the City webpage at www.brentwoodca.gov
The City cannot guarantee that its network, website, and/or the Zoom system will be uninterrupted. To ensure that the City Council receives your comments prior to taking action, you are strongly encouraged to submit them in advance of the meeting by 3:00 p.m. As emails containing public meeting comments are part of the official record, note that personal contact information may be published if it is included with your e-mail.

In addition, any other disclosable public records related to an agenda item for the open session of this meeting distributed to all or a majority of the City Council less than 72 hours before any meeting will be made available online shortly thereafter.

For more information regarding the proposed Resolution and/or the draft Turnkey Design Agreement, please feel free to contact Casey Wichert, Director of Public Works at [email protected], or (925) 516-6000.

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Year
Estimated EV
Utlility Usage
Annual
Estimated
Electricity Costs
O&M Costs LCFS Credit EV Annual
Operating Costs Year
Estimated
Fuel Usage
(gal)
Fuel Cost O&M Costs
ICE Annual
Operating Costs Year
Annual
Operating
Savings
Number of Evs 34 2025 1,176,400 $ 211,752 $ 176,800 $ (45,000) $ 343,552 2025 42,500 $ 191,250 $ 387,600 $ 578,850 2025 $ 235,298 Total Annual Miles Driven/EV 20,000 2026 1,176,400 $ 220,222 $ 182,104 $ (43,650) $ 358,676 2026 42,500 $ 196,988 $ 399,228 $ 596,216 2026 $ 237,539 Total Miles Driven 680,000 2027 1,176,400 $ 229,031 $ 187,567 $ (42,341) $ 374,258 2027 42,500 $ 202,897 $ 411,205 $ 614,102 2027 $ 239,844 Fuel Mileage, mpg 16 2028 1,176,400 $ 238,192 $ 193,194 $ (41,070) $ 390,316 2028 42,500 $ 208,984 $ 423,541 $ 632,525 2028 $ 242,209 Fuel Cost, $/Gal $ 4.50 2029 1,176,400 $ 247,720 $ 198,990 $ (39,838) $ 406,872 2029 42,500 $ 215,254 $ 436,247 $ 651,501 2029 $ 244,629 Fuel Cost Annual Escalation 3% 2030 1,176,400 $ 257,629 $ 204,960 $ (38,643) $ 423,945 2030 42,500 $ 221,711 $ 449,335 $ 671,046 2030 $ 247,100 Average Utility Elec. Cost, $/kWh $ 0.18 2031 1,176,400 $ 267,934 $ 211,108 $ (37,484) $ 441,559 2031 42,500 $ 228,363 $ 462,815 $ 691,177 2031 $ 249,619 Annual Utility Cost Escalation, % 4.0% 2032 1,176,400 $ 278,651 $ 217,442 $ (36,359) $ 459,734 2032 42,500 $ 235,213 $ 476,699 $ 711,912 2032 $ 252,179 ICE Annual O&M, $/mi $0.57 2033 1,176,400 $ 289,797 $ 223,965 $ (35,268) $ 478,494 2033 42,500 $ 242,270 $ 491,000 $ 733,270 2033 $ 254,776 EV Annual O&M, $/mi $0.26 2034 1,176,400 $ 301,389 $ 230,684 $ (34,210) $ 497,863 2034 42,500 $ 249,538 $ 505,730 $ 755,268 2034 $ 257,405 EV Energy Use, kWh/mi 1.73 2035 1,176,400 $ 313,445 $ 237,604 $ (33,184) $ 517,865 2035 42,500 $ 257,024 $ 520,902 $ 777,926 2035 $ 260,061 Inflation 3% 2036 1,176,400 $ 325,982 $ 244,733 $ (32,189) $ 538,526 2036 42,500 $ 264,735 $ 536,529 $ 801,264 2036 $ 262,737 2037 1,176,400 $ 339,022 $ 252,075 $ (31,223) $ 559,873 2037 42,500 $ 272,677 $ 552,625 $ 825,302 2037 $ 265,428 2038 1,176,400 $ 352,583 $ 259,637 $ (30,286) $ 581,933 2038 42,500 $ 280,857 $ 569,204 $ 850,061 2038 $ 268,128 2039 1,176,400 $ 366,686 $ 267,426 $ (29,378) $ 604,734 2039 42,500 $ 289,283 $ 586,280 $ 875,563 2039 $ 270,828 EV Electric Vehicle 2040 1,176,400 $ 381,353 $ 275,449 $ (28,496) $ 628,306 2040 42,500 $ 297,961 $ 603,868 $ 901,829 2040 $ 273,524 ICE Internal Combustion Engine 2041 1,176,400 $ 396,608 $ 283,712 $ (27,641) $ 652,678 2041 42,500 $ 306,900 $ 621,984 $ 928,884 2041 $ 276,206 O&M Oprerations and Maitenance Cost 2042 1,176,400 $ 412,472 $ 292,223 $ (26,812) $ 677,883 2042 42,500 $ 316,107 $ 640,644 $ 956,751 2042 $ 278,868 LCFS Low-Carbon Fuel Standard 2043 1,176,400 $ 428,971 $ 300,990 $ (26,008) $ 703,953 2043 42,500 $ 325,590 $ 659,863 $ 985,453 2043 $ 281,500 LCFS Credit A tradeable environmental attribute 2044 1,176,400 $ 446,130 $ 310,020 $ (25,228) $ 730,922 2044 42,500 $ 335,358 $ 679,659 $ 1,015,017 2044 $ 284,095 derived from charging your electric vehicle Total 23,528,000 $ 6,305,568 $ 4,750,682 $ (684,308) $ 10,371,941 Total 850,000 $ 5,138,959 $ 10,414,957 $ 15,553,916 Total $ 5,181,975 with clean energy
Ops Savings w/EV
City of Brentwood - EV White Fleet Analysis
Project Abbreviations
Assumptions
20 Year Cashflow - EV White Fleet 20 Year Cashflow - ICE Fleet $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Annual Operating Costs Comparison, EV vs. ICE Vehicle
EV Annual Operating Costs ICE Annual Operating Costs
# Public Page 165 of 228
In the United States Court of Federal Claims
No. 21-788
Filed: January 18, 2023

SCHNEIDER ELECTRIC BUILDINGS
AMERICAS, INC.,
Plaintiff,
v.

THE UNITED STATES,
Defendant.

Christopher V. Fenlon, Hinckley, Allen & Snyder LLP, Albany, New York, for Plaintiff.

Ebonie I. Branch, Trial Attorney, Steve Gillingham, Assistant Director, Patricia M. McCarthy, Director, and Brian M. Boynton, Principal Deputy Assistant Attorney General, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for Defendant.

MEMORANDUM OPINION AND ORDER
TAPP, Judge.

In contract cases, parties do not get what they deserve, only what they successfully negotiate. Plaintiff, Schneider Electric Buildings Americas, Inc. (“Schneider”) contracted with defendant, the U.S. Department of Agriculture (“USDA” or “United States”) for implementing Energy Conservation Measures (“ECMs”) at USDA’s Western Regional Research Center (“WRRC” or “the Research Center”) to reduce energy consumption. USDA terminated the contract for default because it was dissatisfied with the performance of one subset of the energysaving equipment installed by Schneider, steam-generating and hot-water generating boilers, and perceived Schneider’s remediation plan unsuitable.

Schneider’s Complaint alleges that the United States wrongfully terminated for default (count I), breached the contract by not carrying its duty to maintain the boilers (count II), by denying Schneider access to USDA’s electric remote-access system that controlled and monitored the energy systems in the building (count III), by failing to compensate Schneider for the latent/differing site conditions (count IV), by failing to comply with its payment obligations under the contract (count V), and by breaching the covenant of good faith and fair dealing (count VI). (Compl. at 21–24, ECF No. 1). Schneider moves for summary judgment as to count I and partial summary judgment as to counts II, III, and V. (Pl.’s Mot. at 11, ECF No. 56).

Justified in its grievances or not, the United States embarked on an exit track that diverged from the contract’s terms. Specifically, neither the United States’ unilateral decision to withhold 2 progress payments nor its decision to view the secondary impact of Schneider’s performance on the research at WRRC as an adequate basis for default termination is supported by the negotiated contract terms. As such, the default termination was improper.

I. Background
Under the National Energy Conservation Policy Act, federal agencies may contract for energy savings. 42 U.S.C. § 8287(c)(3). It is a requirement under such contracts that the contractor “incur costs of implementing energy savings measures,” including the cost of “acquiring and installing equipment, and training personnel.” 42 U.S.C. § 8287(a)(1). In exchange for incurring the upfront cost of installing energy saving measures, these contracts entitle the contractor to “a share of any energy savings directly resulting from implementation,” of the energy savings measures at the site. Id.

Under the Energy Savings Performance Contract (“ESPC” or “the Contract”) in this case, Schneider installed and commissioned $13 million in Energy Conservation Measures at the USDA Research Center located on the east shore of the San Francisco Bay in Albany, California. (Pl.’s Ex. 3 at 4). 1 The Contract also provided for incorporation of a new Building Automation System (“BAS”) “to monitor and adjust setpoints, scheduling, alarms, and trending to reduce run hours on equipment and ensure a standard level of comfort.” (Pl.’s Ex. 3 at 3). The Contract anticipated 23 years of performance, during which the energy savings would be shared; under this arrangement, Schneider would be paid $24,788,327 through annual installments (made up of the cost of ECMs installed, Schneider’s financing cost, as well as payments for Schneider’s postinstallation performance). (Pl.’s Ex. 1 at 29). The Contract incorporated Schneider’s May 2013 Final Proposal which stated that the contractual agreement was designed around three goals: (1) “Reduce manpower requirements for steam plant,” (2) “Maximize energy reduction,” and (3) “Address key facility needs.” (Pl.’s Ex. 3 at 3; Pl.’s Ex. 4 at 5 (incorporating the Final Proposal)). The Contract also incorporated, relevant here, a Risk, Responsibility, and Performance Matrix (“RRPM” or “Responsibility Matrix”) and an Operations, Maintenance, Repair, & Replacement Plan (“OMR&R” or “Maintenance Plan”) that further detailed each party’s duties and responsibilities. (Pl.’s Ex. 1 at 47–8).

One category of the ECMs installed by Schneider, the Boiler ECM, included two different types of boilers: steam-generating boilers called “Parker boilers” and hot-water1 Citations to the record in this opinion are from the exhibits accompanying Plaintiff’s motion for summary judgment, (Pl.’s Mot., ECF No. 56), referred to as “Pl.’s Ex. __” and the appendix accompanying Defendant’s corrected response to motion for summary judgment, (Def.’s Resp., ECF No. 58), referred to as “Def.’s App. __” and docketed at ECF No. 59. When citing deposition transcripts, the page numbers refer to the page numbers of the original documents and not the page numbers generated by CM/ECF. When citing to the parties’ briefs and other filings, including the parties’ exhibits, the page numbers refer to the CM/ECF page numbers located in the heading of each page.
3 generating boilers called “Lochinvar boilers.” (Pl.’s Ex. 3 at 172). This Boiler ECM accounted for approximately 22% of the total price of all ECMs. (Pl.’s Mot. at 39).

In May 2015, USDA certified that Schneider had completed the construction phase of the Contract and fully accepted the Boiler ECM in October 2015 after Schneider supplemented some of its work on the Boiler ECM. (Pl.’s Ex. 9, 15). Under the Contract, USDA’s payment obligations commenced after full acceptance of the equipment installed by Schneider. (Pl.’s Ex. 1 at 29).

The parties’ dispute germinated from mechanical issues with the Boiler ECM. (Def.’s Resp. at 8). Both types of boilers required “blowdowns” to remove sediment and impurities from the water and chemical treatment of their feedwater. (Pl.’s Ex. 8 at 6, 14). Water impurities impacted the Boiler ECM performance, causing scaling, corrosion and ultimately the emergence of “pinhole leaks in the tube bundles.” (Pl.’s Ex. 50 (WRRC’s Center Director, Tara McHugh’s (“McHugh”) Deposition (“Dep.”)) 40:13–42:5; Ex. 48 (USDA Quality Assurance Specialist, Christopher Mehelis’ (“Mehelis”) Dep.) 89:16–90:9). Schneider subsequently installed automatic top blowdowns on the boilers, while certain boilers continued to rely on manual labor for bottom blowdowns. (Pl.’s Ex. 17, 18, 48 (Mehelis Dep.) 90:10-16). USDA asserts that the boilers “failed routinely and were never repaired to the point where they operated reliably.” (Def.’s App. at 193 (McHugh Dep.) 61:10–13; see also Def.’s Resp. at 8 (detailing frequency of boiler failures)).

Additionally, in and around early 2019, USDA terminated Schneider’s access to BAS, later citing IT concerns. (Def.’s Resp. at 39).

USDA did not pay the Year 5 invoice issued by Schneider, due January 1, 2019; it instead remitted a late partial payment on April 16, 2019.2(Def.’s Resp. at 35). Schneider claims that in June 2019, it had submitted a plan to repair the Lochinvar boilers in response to an earlier request by USDA from May 2019. (Pl.’s Mot. at 26). Despite this plan, on July 11, 2019, USDA sent Schneider a cure notice (“the Cure Notice”) requesting a plan of action and timeline for addressing “Lochinvar boiler operational consistency,” notifying Schneider that USDA believed those issues to be “endangering the overall performance of the contract.” (Pl.’s Ex. 24).

During a July 2019 meeting, the USDA officials discussed the possibility of terminating the Contract. (Pl.’s Ex. 49 (Contract Specialist, Robert Risch’s (“Risch”) Dep.) 123:9–124:16; Pl.’s Ex. 25). On January 1, 2020, USDA once again did not pay the Year 6 invoice from Schneider in full, instead remitting a late partial payment on August 11, 2020, over eight months overdue. (Def.’s Resp. at 35).3In January 2020, Schneider submitted a Claim under Federal Acquisition Regulations (“FAR”) 52.233-1 seeking the remaining balance of its Year 5 and the entirety of its Year 6 payment, plus interest, (Pl.’s Ex. 32), and in November 2020, for the costs associated with the USDA’s cancelation of and refusal to restore access to the BAS. (Pl.’s Ex. 45).
2 USDA’s late payment of $334,576.06 was $550,314.03 short of the amount requested in the invoice. (Pl.’s Ex. 3, 21).
3 USDA’s late payment of $652,298.40 was $255,456.50 short of the amount requested in the invoice. (Pl.’s Ex. 29, 30, 43).
4 On February 7, 2020, dissatisfied with Schneider’s response to the Cure Notice, USDA sent Schneider a show cause letter asking for a plan of action to repair the problems “with the Lochinvar as well as the Parker boilers,” and notifying Schneider that USDA was “considering terminating the contract under the provisions for default of this contract.” (Pl.’s Ex. 33) Schneider did not immediately respond to the show cause letter because the only recipient of the notice was out on maternity leave. (Pl.’s Ex. 47 (USDA Contracting Officer, Deborah Hughes (“Hughes”) Dep.) 171:15–21; Pl.’s Ex. 49 (Risch Dep.) 143:25–144:8). On March 17, 2020, USDA issued a “Nonresponse to Cure Notice/Show Cause Notice” that informed Schneider that it was proceeding with termination for default. (Pl.’s Ex. 34). This letter stated that “ongoing reported failures of both the Parker and Lochinvar boilers,” were negatively impacting “the missions of the USDA PWA WRRC units as well as other USDA Agency Units . . . causing continued harm and loss to the government.” (Id.). Schneider’s response to this letter explaining why it failed to respond to the show cause letter and attempting to address USDA’s concerns did not elicit a response from USDA. (Pl.’s Ex. 49 (Risch Dep.) 150:6–22). Schneider continued to respond to USDA’s service calls. (Id. at 157:12–23; Pl.’s Ex. 46).

On April 23, 2020, USDA transmitted a Request for Review of Termination for Default to the Contract Review Board (“CRB”). (Pl.’s Ex. 36). On July 5, 2020, USDA drafted a Memorandum of Record (“MOR” or “July Memo”) that memorialized the reasons for termination and included discussion of seven factors listed at FAR 49.402-3(f) (“FAR factors”). (Pl.’s Ex. 41).

Finally, on July 30, 2020, USDA terminated the contract for default under FAR 52.249-8. (Pl.’s Ex. 42). The termination letter lists “continued interruption of services daily from single/multiple boilers” and Schneider’s “insufficient” response to it as cause for termination, stating that this “was endangering the overall performance of the contract.” (Pl.’s Ex. 42); see also FAR 52.249-8(a)(1)(ii) (providing that the United States may terminate for default if the contractor fails to “[m]ake progress, so as to endanger performance of . . . contract”).

Schneider argues that the default termination was improper (claim I) because the Contracting Officer (“CO”) did not consider the FAR factors, abdicated responsibility in considering termination, and because USDA’s cure notice was insufficient. (Pl.’s Mot. at 33–44).

Schneider also argues that the United States breached the contract by: (1) unilaterally withholding progress payments in contravention of the contractual payment schedule (count V), (2) failing to comply with its contractual operations and maintenance obligations which impeded the performance (count II), and (3) canceling Schneider’s remote access to the Research Center’s Building Automation System which would have allowed Schneider to monitor and troubleshoot equipment performance (count III). (Pl.’s Mot. 44–48).

II. Analysis
The United States may terminate contracts for default based on the contractor’s actual or anticipated failure to perform its contractual obligations. FAR 2.10, 49.401(a). Despite its deep roots in public procurement, default termination is still commonly recognized as a “harsh,” “drastic,” and “disfavored” remedy. Pinckney v. United States, 88 Fed. Cl. 490, 505 (2009); Composite Laminates v. United States, 27 Fed. Cl. 310, 325 (1992). Therefore, the United States 5 bears a “heavy burden” to establish default termination was justified. Composite, 27 Fed. Cl at 326; Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987). Because courts recognize federal agencies’ need to rely on default termination to discharge deficient contractors, default terminations can be upheld even based on post-hoc reasons, so long as they clearly reflect the contractor’s deficiencies. Joseph Morton Co. v. United States, 757 F.2d 1273, 1277 (Fed. Cir. 1985) (finding that it is “settled law that a party can justify a termination if there existed at the time an adequate cause [for termination], even if then unknown.”) (citing Pots Unlimited, Ltd. v. United States, 600 F.2d 790, 793 (Ct. Cl. 1979)). But in every case, default termination will only be sustained if it is based on “good grounds and on solid evidence.” J. D.

Hedin Constr. Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969).

Even where a contracting officer’s legal opinion and findings of fact are fully explained, such explanations are not binding on the United States before the Court, as the Court’s review is de novo. Cherokee Gen. Corp. v. United States, 150 Fed. Cl. 270, 283 (2020); 41 U.S.C. § 7103(e). Whether the United States is justified in exercising its contractual right to terminate for default involves a question of law based on factual underpinnings. McDonnell Douglas Corp. v.

United States, 567 F.3d 1340, 1347 (Fed. Cir. 2009), vacated on other grounds by Gen.

Dynamics Corp. v. United States, 563 U.S. 478 (2011); Pinckney, 88 Fed. Cl. at 505 (“The decision of the contracting officer to terminate a contractor for default is reviewed de novo by the Court of Federal Claims.”). In a specific subset of cases where the contractor alleges that there was no “nexus between the default termination and the contractor’s performance,” or that the contracting officer’s decision was “rendered in bad faith,” the Court may set aside the termination as arbitrary, capricious or an abuse of discretion. See Darwin Constr. Co. v. United States, 811 F.2d 593, 598 (Fed. Cir. 1987)); McDonnell Douglas Corp. v. United States, 182 F.3d 1319, 1329 (Fed. Cir. 1999) (citing U.S. Fidelity & Guaranty Co. v. United States, 676 F.2d 622, 630 (Ct. Cl. 1982)). In such cases, the Court’s determination is shaped by four factors: (1) evidence of subjective bad faith on the part of the government official, (2) whether there is a reasonable, contract-related basis for the official’s decision, (3) the amount of discretion given to the official, and (4) whether the official violated an applicable statute or regulation. McDonnell Douglas Corp, 182 F.3d at 1326. If the contractor can show that the default termination was unjustified, the standard remedy is a conversation of the improper default termination to a termination “for the convenience of the Government.” FAR 52.249-8(g).

The moving party is entitled to judgment as a matter of law when “there is no genuine issue as to any material fact.” Composite, 27 Fed. Cl. at 314. In considering a motion for summary judgment, the Court will eschew weighing the evidence and instead will determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986).

An issue is “genuine” if it “may reasonably be resolved in favor of either party.” Id. at 250.

Contract interpretation involves questions of law and is therefore “generally amenable to summary judgment.” Premier Office Complex of Parma, LLC v. United States, 916 F.3d 1006, 1011 (Fed. Cir. 2019) (citation omitted).
6 A. Improper Default Termination
The Contract incorporated the default clauses for Fixed-Price Supply and Services and Fixed-Price Construction Contracts, FAR 52.249-8 and 52.249.10, by reference. (Pl.’s Ex. 1 at 52). FAR 52.249-8(a)(1) requires the contracting officer to provide a written notice to the contractor informing them of the intention to terminate for default, if the contractor fails to either: (1) “[d]eliver the supplies or to perform the services within the time specified” in the contract or any extension; (2) “[m]ake progress, so as to endanger performance” of the contract or (3) perform any of the other provisions of the contract. Id. If the contractor does not cure such failure within 10 days after receipt of the written notice from the contracting officer specifying the failure, the contracting officer can terminate for default. FAR 52.249-8(a)(2). These legal requirements provide the background for the Court’s review of Schneider’s claims that default termination was improper—namely, whether USDA’s consideration of FAR factors was inadequate, whether the CO abdicated her responsibilities in conducting the termination analysis or by relying on “outdated, irrelevant, and inaccurate Information,” and whether the USDA’s notice was insufficient. (Pl.’s Mot. at 33–36).
i. Failure to consider FAR 49.402-3 factors
FAR 49.402-3(f) states that “[t]he contracting officer shall consider,” seven listed factors in determining whether to terminate a contract for default. These factors are: (1) the terms of the contract and applicable laws and regulations; (2) the failure of the contractor and any excuses for such failure; (3) the availability of supplies or services from other sources; (4) the urgency of the need for the supplies or services and the period of time required to obtain them from alternative sources after default termination; (5) the degree of essentiality of the contractor in the acquisition program and the impact of termination on the contractor’s capability as a supplier under other contracts; (6) the effect of default termination on the ability of the contractor to liquidate guaranteed loans, progress payments, or advance payments; and (7) any other pertinent facts and circumstances. Id. Schneider argues that this provision dictates an “unambiguous requirement,” and that strict review of each factor must precede every termination decision. (Pl.’s Mot. at 56).

Schneider points to what it believes to be critical events in USDA’s consideration of default termination (such as the July 2019 internal presentation to USDA senior management or the April 2020 request to the CRB) and emphasizes that extensive discussion or evaluation of any of the FAR 49.402-3 factors is conspicuously absent. (Pl.’s Mot. at 34; Pl.’s Ex. 25). The parties agree that the only evidence in the record showing consideration of the seven FAR factors appears in the July Memo analysis. (Def.’s Resp. at 10; Pl.’s Ex. 49 (Risch Dep.) 151:21–23; Pl.’s Ex. 41).

Schneider is incorrect that failure to follow FAR 49.402-3(f) grants the contractor basis for overturning the default determination. This much is clear from DCX, Inc. v. Perry, which states that FAR 49.402-3(f), whatever its scope or application, does “not confer rights on a defaulting contractor.” 79 F.3d 132, 135 (Fed. Cir. 1996). After all, the Court has long recognized that a default termination may be justified even upon alternative grounds that were not identified by the contracting officer at all, and in cases where the contracting officer’s own 7 “analysis necessary to sustain,” such alternative theory does not exist in the record. Empire Energy Mgmt. Sys. v. Roche, 362 F.3d 1343, 1357 (Fed. Cir. 2004). 4 Schneider frames the absence of evidence that the CO independently considered the seven FAR factors, evidence of the CO’s lack of technical familiarity with the project, and the contract specialist’s lack of personal familiarity with the Research Center, as additional grounds for invalidating the termination decision. (Pl.’s Mot. at 29, 41–42). Schneider maintains that, together, these procedural errors establish that the CO failed to independently assess the merits of the termination decision, resulting in an “abdication of responsibility.” (Id. at 36–41).

Schneider’s contentions stretch the boundaries of what the Court has historically viewed as “abdication of responsibility.”
The requirement for the contracting officer to exercise “personal and independent judgment,” is not an “implied prohibition against . . . first obtaining or even agreeing with the views of others.” Pac. Architects & Eng’rs, Inc. v. United States, 491 F.2d 734, 744 (Ct. Cl. 1974); see also North Star Alaska Hous. Corp. v. United States, 76 Fed. Cl. 158, 209 (2007). The Court’s focus is therefore not on assessing whether the CO had first-hand knowledge of every detail in the final opinion; instead, the key inquiry is whether the CO can “take ownership of all determinations included in the final . . . opinion,” CEMS, Inc. v. United States, 65 Fed. Cl. 473, 479 (2005). For example, when the contracting officer is directed by a superior officer to decide the dispute in a certain way without regard to the evidence before him, the Court has found that to constitute an abdication of responsibility. See e.g., Johnson Contracting Co. v. United States, 132 F. Supp. 698 (Ct. Cl. 1955). This case does not present an instance in which the CO’s decision was detached from the merits of the case as the USDA officers understood them. Nor is there any evidence of outside pressure, such as superiors or other officers strongarming the CO into making a final determination contrary to her own findings. See e.g., Schlesinger v. United States, 390 F.2d 702 (Ct. Cl. 1968); John Reiner & Co. v. United States, 325 F.2d 438, 442 (Ct.

Cl. 1963).

The Court has routinely reiterated that a contracting officer may properly rely on and adopt as their own the advice of technical personnel without sacrificing independent judgment.

See e.g., RDA Constr. Corp. v. United States, 132 Fed. Cl. 732, 788–89 (2017) (rejecting the argument that CO’s lack of knowledge about the construction issues reflected “clear lack of independence”). Schneider has not pointed to evidence of dishonesty, bad faith, or hostility that would call into question the CO’s reliance on the information provided by the USDA officials. 4 After full briefing and oral argument, both parties agree that the FAR 49.402-3(f) factors are not the “end-all of the analysis,” and instead present guidelines that “the Court should take into consideration.” (July 11, 2022, Oral Argument Transcript (“OA Tr.”) 20:15–21:11, ECF No. 52).

Furthermore, focusing on the alleged flaws in the procedures followed by the CO through the arbitrary and capriciousness lens—as Schneider does—misconstrues the Court’s standard of review for such cases. Cherokee Gen. Corp., 150 Fed. Cl. at 279 (noting that “[t]he Court of Federal Claims does not use an Administrative Procedure Act style standard of review in cases that arise under the Contract Disputes Act (CDA)”). Instead of focusing on how the agency reached or recorded its findings and determinations, the Court makes its own findings and determinations under a de novo standard. See 41 U.S.C. § 7104(b)(4). 8 See e.g., Alutiiq Mfg. Contrs., LLC v. United States, 143 Fed. Cl. 689, 698 (2019) (finding that evidence of “hostility” towards the contractor or “history of dishonesty” can undermine the contracting officer’s reasoning). Indeed, the FAR recognizes the importance of contracting officers’ collaboration with other experts in reaching contract decisions, noting that contracting officers should “request and consider the advice of specialists in audit, law, engineering, information security, transportation, and other fields, as appropriate,” 48 C.F.R. §§ 1.602-2(c),

33.211. CEMS, Inc., 65 Fed. Cl. at 479 (“This court . . . once again does not[] find that the traditional use of a contracting officer’s technical representative in the administration of large contracts, with many separate tasks, necessarily constitutes an abdication of responsibilities.”).

Schneider commits a considerable amount of its motion to describing how each FAR

49.402-3(f) factor was misapplied. (Pl.’s Mot. 29–32, 41–42). As the Court finds that not every departure from FAR 49.402-3(f) automatically entitles the contractor to conversion of a default termination, it forgoes a line-item review of each single argument presented. Nonetheless, when the CO’s reasoning is evaluated with particular attention to the FAR 49.402-3(f) factors, a critical flaw in the CO’s reasoning emerges.

FAR 49.402-3(f)(1) states that the contracting officer shall consider “the terms of the contract and applicable laws and regulations” in making the termination decision. FAR 52.249-8 is an example of an applicable regulation that the CO relied on; particularly, the CO found that Schneider had failed to “[m]ake progress, so as to endanger performance of this contract,” meeting the requirements of 52.249-8(a)(1)(II). (Pl.’s Ex. 42 (termination letter citing Schneider’s “inability to provide a schedule to evaluate the problems with . . . boiler operational consistency [as] a condition that is endangering the overall performance of the contract”).

Although a variety of issues can endanger the performance of a contract so as to justify termination, such as failure to meet performance milestones, see e.g., Armour of Am. v. United States, 96 Fed. Cl. 726, 745–46 (2011), ongoing problems with subcontractors and suppliers, see e.g., Artisan Electronics Corp. v. United States, 205 Ct. Cl. 126 (1974), or the contractor’s financial difficulties, see e.g., Danzig v. AEC Corp., 224 F.3d 1333 (2000), in every instance the underlying performance requirement must be rooted in and articulated in the clear terms of the contract. See Armour of Am., 96 Fed. Cl. at 745–46 (2010); see also, Mktg. & Mgmt. Info., Inc. v.

United States, 57 Fed. Cl. 665, 674 (2003) (“The parties’ respective rights and responsibilities would normally be found only within the four corners of the contract.”).

Here, USDA found that Schneider’s failure to progress was endangering performance, not because Boiler ECM failures were impacting the energy-savings guarantees under the Contract, but because they were “hinder[ing] USDA’s research efforts.” (Def.’s Resp. at 8). The July Memo likewise highlights the boiler failures’ impact on “the ability of the units at the location to progress and/or complete their missions in a timely manner with . . . potential of causing harm to the general food supply as one of the missions is food safety inspection.” (Pl.’s Ex. 41). Ms. Hughes elaborated on what USDA viewed as endangering the performance of the contract: “there’s various research labs at WRRC, so if water temperatures are not correct, or are not working at all for the scientists to complete their researches . . . it affects the outcome of the research results.” (Def.’s App. at 161 (Hughes Dep.) 247:13–22). The United States’ response to the motion for summary judgment reiterates the same reasoning, claiming that “Schneider’s interruption of USDA’s research endeavors . . . is undoubtedly a violation of the contract terms.” (Def.’s Resp. at 18). Yet neither the CO then, nor the United States now, have identified the 9 contract terms that would entitle the United States to view interference with USDA’s research as a critical failure in performance. Instead, as the contract states, the parties’ agreement was designed around the following performance “goals:” (1) “reduc[ing] manpower requirements for steam plant,” (2) “[m]aximiz[ing] energy reduction,” and (3) “[a]ddress[ing] key facility needs,” by “upgrad[ing] key pieces of equipment.” (Pl.’s Ex. 3 at 3). The United States has not argued, let alone establish, that Schneider did not deliver the energy reduction guarantees or failed in the delivery of upgraded equipment. (Ex. 42). When pressed at oral argument on the glaring absence of any reference to contract terms that would specify stability of USDA’s research endeavors as a separate and important goal, the United States averred that there are not “any such specifications in the contract.” (OA Tr. 13:4–23, see also 14:8–16 (“But to answer your question directly, I’m not aware of any specific specification that says, you know, the project will maintain this water temperature or pressure or whatever the case may be.”).

Faced with this incongruency, the United States urges the Court to look beyond the four corners of the contract and to the broader intent behind the Contract. (OA Tr. 27:12–29:18). Yet, as the Federal Circuit has noted, a reasonable basis for termination must be both “contractrelated” and maintain a close nexus to a “clear violation of contract terms.” Keeter Trading Co. v. United States, 79 Fed. Cl. 243, 253 (2007) (citing McDonnell Douglas, 182 F.3d at 1328); see also Lanterman v. United States, 75 Fed. Cl. 731, 734 (2007) (“One of the relevant factors in determining whether a contractor is in default is the contractor’s failure to meet contract specifications.”). Courts are ill-suited to divine other, unexpressed intentions, of contracting parties when the written agreement specifically details contract goals. Contract negotiations must begin with the end in mind. Despite the United States’ insistence that interference with USDA’s research presented an issue of paramount importance, the United States’ failure to trace that priority to the text of the contract is pivotal. Uniloc 2017 LLC v. Google LLC, 52 F.4th 1352, 1356 (Fed. Cir. 2022) (“[W]here the terms of a contract are clear and unambiguous, the intent of the parties must be found within the four corners of the contract . . . .”) (citing Tomhannock, LLC v. Roustabout Res., LLC, 128 N.E.3d 674, 675 (N.Y. 2019)). The United States bears the burden of showing that resorting to the drastic option of terminating for default was justified. Lisbon Contractors, 828 F.2d at 765. The United States has not shown that the Contract expressly allowed the United States to use any secondary impact on USDA’s research as a quality control measure for Schneider’s performance, even when Schneider has met its energy-savings goals. It is not the Court’s position to “simply rewrite the contract to achieve an end the defendant finds to be more desirable.” Coplin v. United States, 6 Cl. Ct. 115, 127 (1984) (citing Choctaw Nation of Indians v. United States, 318 U.S. 423, 432 (1943)).

The CO approved the default termination despite substantial compliance with the specific goals of the contract, and when the deficiencies did not directly relate to the stated “terms of the contract.” FAR 49.402-3(f)(1); 2 Federal Contract Management ¶ 13.04 (“Because it can be exercised only for cause, default termination, unlike termination for convenience, must always be justified by the contract’s terms.”). As a result, termination for default was improper, and Schneider is entitled to judgment as a matter of law on its wrongful termination claim. ii. Insufficient Notice
Schneider also asserts that the termination decision violated FAR 52.249-8, as it was at least partly based on reasons not specified in the written cure notice. (Pl.’s Mot. at 42). 10 Specifically, Schneider draws attention to several issues discussed in the July Memo that Schneider never received specific notice of or an opportunity to cure; these items involve distinct technical issues with the boilers such as “incorrect pressure rating,” or “the lack of earthquake bracing.” (Id.). Schneider’s argument is unavailing. As the Court has previously stated, cure notice is adequate when “it [is] apparent from the circumstances that the contractor ‘had sufficient notice of the asserted defects.’” Empire Energy, 362 F.3d at 1356 (citing Halifax Eng’g, Inc. v. United States, 915 F.2d 689 (Fed. Cir. 1990)).

In fact, as long as the contractor previously received “a formal, written cure notice directed to a related concern,” default termination can be permissible even without a formal cure notice that specifies each particular failure because in such cases “actual notice of the nature of the government’s concerns” exists. Empire Energy, 362 F.3d at 1356 (emphasis added); see also Am. Marine Upholstery Co. v. United States, 345 F.2d 577, 581 (Ct. Cl. 1965). In reviewing the efficiency of the notice, the Court’s focus is to gather whether it was apparent from the circumstances that the contractor “had sufficient notice of the asserted defects.” Halifax Eng’g, Inc., 915 F.2d at 689.

The record indicates that Schneider had actual notice of the asserted defects. The Cure Notice referenced Schneider’s “inability to provide a schedule to evaluate the problems . . . with boiler operational consistency,” and requested a plan of action for “correction of all discovered problems that [were] causing the continuous,” shutdowns. (Pl.’s Ex. 24). This language is indicative of the parties’ past communications about the boiler issues, and in fact, the record reflects that Schneider, by this point, had enough constructive notice of the scope of issues to submit a plan of action to address them. (Pl.’s Ex. 54 (Schneider’s former contracting team lead, Rachelle Baines’s (“Baines”) Dep.) 151:24–152:3); Pl.’s Mot. at 26 (stating that Schneider had already provided a plan of action to resolve the Lochinvar boilers by that date and claiming that the plan was sufficient to address USDA’s ongoing issues)). The United States also points to evidence in the record, including meeting minutes and emails between parties that paint a picture of extensive communications between the parties about the ongoing technical problems before the Cure Notice was issued. (Def.’s Resp. at 21, 23; see also Pl.’s Mot. at 26 (stating that “[f]ollowing the issuance of the Cure Notice, meetings were held on nearly a bi-weekly basis to discuss Schneider’s plans for addressing the USDA’s concerns”)). The circumstances of the parties’ year-long communication about the defects imply that Schneider could have had actual notice of the exact nature of the USDA’s concerns. Therefore, Schneider has not established that it is entitled to judgment as a matter of law because USDA failed to provide it with sufficient notice of the reasons for termination. See Int’l Verbatim Reporters, Inc. v. United States, 9 Cl.

Ct. 710, 721 (1986) (noting that a cure notice need “not cite each and every failure,” as long as it lists “with enough particularity the performance failures which have placed the contractor in danger of termination for default.”).

B. United States’ Breach of Contract
If a contractor can establish that the United States materially breached the contract, the contractor’s failure to perform may be excused and a termination for default converted to a termination for convenience. Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1276 (Fed. Cir. 1999). Not every departure from the literal terms of a contract, however, amounts to a material breach. Morganti Nat’l v. United States, 49 Fed. Cl. 110, 140 (2001). Whether a 11 particular breach is material “depends on the nature and effect of the violation in light of how the particular contract was viewed, bargained for, entered into, and performed by the parties.” Stone Forest Indus., Inc. v. United States, 973 F.2d 1548, 1551 (1992). Schneider maintains that the United States breached the contract in at least three ways before the default termination decision:
first, by improperly withholding payments; second, by failing to maintain the boilers; and third, by denying Schneider access to the BAS. (Pl.’s Mot at 44–48). To prevail Schneider must show that each action constitutes a breach of the contract and the materiality of the breach. i. Failure to make payments
The Contract incorporated FAR 52-232-1 which mandated that “[t]he Government shall pay the Contractor, upon the submission of proper invoices.” FAR 52.232-25, also incorporated in the Contract, provides that the United States shall issue prompt payment no later than “the “30th day after the designated billing office receives a proper invoice from the Contractor.” Despite this language, it is uncontroverted that USDA did not timely remit the Year 5 and Year 6 payments after receiving an invoice from Schneider. (Pl.’s Ex. 19, 29; Def.’s Resp. at 35).

The United States has not identified any authority in the Contract authorizing the United States to unilaterally withhold payments. Neither do any regulations permit the United States to withhold payment installation on the basis that grounds for default termination may exist. See Johnson v. All-State Constr., Inc. 329 F.3d 848, 852 (Fed. Cir. 2003). Any exceptions to the United States’ obligation to make progress payments must be justified by referencing the Contract’s express term. Florida Engineered Constr. Prods. Corp. v. United States, 41 Fed. Cl. 534, 539 (1998) (“Where the contract does not obligate the government to make progress payments, however, plaintiff cannot allege a breach because the government withheld progress payments.”). In this case, the contract provisions mandating the United States to make prompt payments only allow the United States to adjust the payment amount listed in an invoice “if the contractor fails to meet the guaranteed annual savings . . . .” (Pl.’s Ex. 1 at 33, § G.4., 5), referred to in the Contract as the Measurement and Verification (“M&V”) process. Although this process would notify Schneider of the basis for withholding payments, the United States never followed this procedure and never provided Schneider with an explanation as to why it was withholding payments:

COURT: Can I discern from the record that’s been submitted, the exhibits and everything, that [United States’ reason for withholding payments] was communicated to Schneider, and, if so, when was it communicated? DEFENDANT’S COUNSEL: In fairness, I don’t believe that the Court can discern that from the record[.]
(OA Tr. 44:25–45:5).

Even though the United States now attempts to explain why the annual payments were withheld—to offset the cost of any remaining boiler tenders’ salaries—this post-hoc explanation is untethered from the text of the Contract:

COURT: Where in the contract can I find the authority for the United States to withhold those sums?
12 DEFENDANT’S COUNSEL: . . . I distinctly remember having this conversation with agency counsel. So I do believe there’s a cite. I don’t have it right now in front of me but I am happy to provide it to the Court . . . .
(OA Tr. 42:1–15).5
Both USDA witnesses and the contract specialist have testified that the United States withheld portions of payments to account for cost-savings that the United States believed had not materialized. (Pl.’s Mot. at 20–21; see also OA Tr. 44:20–24 (United States’ Counsel asserting that payments were withheld because “there were so many frequent boiler failures that necessitated additional boiler tender time above and beyond what the agency anticipated . . . .”)).

Schneider retorts that even this post-hoc explanation is contradicted by the terms of the Contract which clearly anticipate reliance on some boiler tenders. (Pl.’s Mot at 20–21).

The United States’ contention that it was entitled to cost-savings that would materialize from the complete elimination of all boiler tenders involves interpretation of the Contract’s terms and therefore presents a question of law.6 CW Gov’t Travel, Inc. v. United States, 63 Fed. Cl. 369, 390 (2004) (“Interpretation of the clear and unambiguous language of a contract is a question of law that may be resolved by summary judgment.”). In resolving disputes involving contract interpretation the Court first examines the plain language of the contract. M.A.

Mortenson Co. v. Brownlee, 363 F.3d 1203, 1206 (Fed. Cir. 2004). The United States’ position is untenable given the text of the contract and contemporary evidence reflecting the parties’ understanding.

The Contract stated that Schneider’s plan “will enable the WRRC to reduce the number of boiler attendants, resulting in annual savings of $443,643.” (Pl.’s Ex. 3 at 3) (emphasis added). The United States has maintained that this language anticipates elimination of boiler tenders. (Pl.’s Ex. 41 at 1 (July Memo noting that “[p]art of cost savings to location was lack of the requirement for boiler tenders which was never accomplished.”)). The United States’ position cannot be reconciled with the plain and ordinary meaning of the term “to reduce.” Alliant Techsystems, Inc. v. United States, 74 Fed. Cl. 566, 576–7 (2007) (“[W]here the language of the contract is clear and unambiguous ‘the words of those provisions must be given their plain and ordinary meaning by the court in defining the rights and obligations of the parties.’”) (citing George Hyman Constr. Co. v. United States, 832 F.2d 574, 579 (Fed. Cir. 1987)).

To reduce does not mean to eliminate or abolish. To reduce is to “diminish in size, amount, extent or number.” Merriam-Webster’s Collegiate Dictionary at 1044 (11th ed. 2009).

Therefore, the Contract anticipated that Schneider would decrease, or perhaps minimize, the 5 Although United States was given the opportunity to supplement its response before the conclusion of oral argument, it did not then, and it has not yet. (OA Tr. 53:16–22). 6 The United States does not cite to the text of the contract to support its argument that the Contract viewed boiler tender cost-reduction as a part of energy-saving; instead it chiefly relies on witness depositions as support. (See Def.’s Resp. at 7 (citing to Ms. Baines’s deposition)). 13 number of boiler attenders, as opposed to eliminating that responsibility altogether. See CUNA Mut. Life Ins. Co. v. United States, 169 F.3d 737, 743 (Fed Cir. 1999) (finding that the word “reduced” is “a common, unambiguous, non-technical term” which means to diminish in size or amount); Saginaw Office Serv. V.. Bank of Am., N.A., 2011 U.S. Dist. LEXIS 34340 at *11 (E.D.

Mich. Mar. 30, 2011) (finding that definition of reduction does not “unambiguously embody an expansive scope that views complete deletion as a subset of diminution.”); Appeal of Catel, Inc., ASBCA No. 52224, 2002 ASBCA LEXIS 4, 2002-1 BCA ¶ 31,731 at 156,763 (finding “that the word “reduction” cannot be interpreted so as to convey an intent to delete the disputed items.”).

The United States has not bolstered its argument with any other evidence that would contradict this ordinary meaning or imply that by using the term “reduce” the parties stated an objective to reduce to zero or eliminate boiler tender requirements.

Even if this language was ambiguous, the parties’ course of dealing and contemporaneous circumstances do not support United States’ position. See Pub. Serv. Co. of Okla. v. United States, 88 Fed. Cl. 250, 258 (2009) (“Course of performance can become instructive when the contract terms are ambiguous.”). The record reflects that internal presentations prepared by the USDA staff stated that the Boiler ECM “[a]llowed center to reduce 24 hour boiler tender to 8 hr., 5 days a week boiler tender . . . .”) (Pl.’s Ex. 16 at 15). In emails discussing the need to install automatic blowdowns for the boilers, USDA staff stated that “Schneider was aware at the outset of the [contract] that [post-contract] boiler tender presence would no longer be 24/7 but rather M-f, ~8 hours/day.” (Pl.’s Ex. 18 at 2). Schneider provided the USDA with manuals that described the responsibilities for operations of the boilers; these manuals stated that the boilers required blowdowns that “should be made in the middle or the start of each shift,” guidance that would contradict an understanding among the parties that the contract anticipated elimination of boiler tender shifts. (Pl.’s Ex. 8 at 6); Jansen v. United States, 344 F.2d 363, 369 (Ct. Cl. 1965) (“It is a canon of construction that the interpretation placed by the parties upon a contract during its performance is demonstrative of their intention.”).

Therefore, the Court finds that the United States’ decision to unilaterally withhold payments to offset the cost of compensating boiler tenders constituted a breach of contract because the Contract did not anticipate elimination of boiler tenders.

The United States’ breach in unilaterally withholding significant portions of two progress payments is also material. The Court has recognized that a “prolonged failure to pay large amounts” constitutes a material breach. Northern Helex Co. v. United States, 455 F.2d 546, 550 (Ct. Cl. 1972) (finding that the Court of Claims’ jurisprudence “strongly suggests” that “a total failure to pay over many months” by the Government is “material, just as it would be in the case of a private party.”). Because this material breach preceded United States’ termination for default, it provides a separate ground for converting the default termination to a termination for convenience. Morganti Nat’l, 49 Fed. Cl. at 140 (“[A] termination for default [is] converted to a termination for the convenience of the government if the contractor can establish that the government materially breached the contract.”).
ii. Failure to Maintain Boilers
Schneider also claims that the United States breached the Contract by failing to perform its boiler maintenance obligations under the Contract, causing a “critical failure,” to the Parker boilers. (Pl.’s Mot. at 46). Prior to the Contract, the existing boiler system at the Research Center 14 required boiler tenders to be physically on-site 24 hours a day, seven days a week. (Pl.’s Ex. 52 at 3). As stated, although the parties share the understanding that the Contract was designed to move this task towards automation, they disagree as to whether the Contract required Schneider to eliminate the need for physical maintenance by boiler tenders. Both parties agree that boiler feed water impurities and failure to conduct blowdowns with sufficient frequency contributed to the critical failure. (Pl.’s Mot. at 19; Def.’s Resp. at 37).

Schneider argues that the Contract unambiguously assigned the task of regularly maintaining the boilers to the United States. (Pl.’s Mot at 46). To support this assertion, Schneider points to the Responsibility Matrix, incorporated in the contract, which states that “[i]t is the responsibility of the government to ensure that all ECMs are used properly and in accordance with the Key Operating Strategies contained [in] each [sic] ECM’s Design Intent Document and/or Basis of Design in the IGA.” (Pl.’s Mot. at 14–16; Ex. 3 at 168). Schneider also relies on the Maintenance Plan which includes a responsibility breakdown for maintenance of the boilers; this breakdown outlines Schneider’s boiler maintenance obligations as conducting “Quarterly and Annual activities only.” (Pl.’s Ex. 3 at 15). Moreover, the warranty plan clause of the contract also alludes to USDA’s maintenance responsibilities by stating that Schneider’s warranty excludes remedy for any damage caused by “improper or insufficient maintenance of equipment and systems for which the Government is responsible for preventive maintenance,” or “improper operation of equipment and systems for which the Government is responsible for operations . . . .” (Pl.’s Ex. 3 at 172). Beyond the text of the agreement, Schneider also provides evidence reflecting the parties’ understanding of the same division of tasks; for example, minutes from a December 13, 2013, meeting between Schneider and USDA states: “Preventative maintenance for boilers to be provide[d] by [Schneider’s] team on a quarterly and annual basis,” and that “[d]ay-to-day operation of boilers will remain responsibility of the USDA/Center.” (Pl.’s Ex. 7 at 3).

The United States differs. Its response does not address the import of the contractual text relied on by Schneider which suggests that routine maintenance of the boilers was USDA’s responsibility; neither does the United States dispute that USDA failed to conduct such routine maintenance tasks such as treating the feedwater or conducting bottom blowdowns. Instead, the United States responds that there is a genuine issue of material fact as to what caused the boiler failures. (Def.’s Resp. at 36–8). Relying solely on witness testimony, including that of the Director of the Research Center, and without reference to specific text of the contract, the United States claims that the boiler failures should be attributed to a technical oversight by Schneider— namely, Schneider’s failure to install automatic surface or top blowdowns—and not the failure to conduct manual bottom blowdowns. (Id.). The United States also claims that a genuine issue of material fact remains as to whether insufficient routine maintenance, such as chemically treating the boiler feedwater or failure to conduct manual bottom blowdowns, should be perceived as the cause for the boiler failures (Def.’s Resp. at 38 (stating that USDA “claims feedwater [was] the same quality as at onset of project” and that USDA was “[n]ever told about blowdown need[,] which would require boiler tender time.”)). Even if the United States disputes Schneider’s argument that lack of routine preventative maintenance caused the boiler failures, that response fails to address the threshold legal question over which party was responsible for conducting such maintenance under the Contract. Analyzing the actual impact of failure to conduct such maintenance on boiler shutdowns is secondary to determining which party had that responsibility 15 in the first place. Accordingly, the Court first analyzes the text of the contract to determine parties’ maintenance obligations.

The express terms of the Contract state that Schneider is only responsible for boiler maintenance tasks that are carried out on a “Quarterly or Annual” basis only. (Pl.’s Ex. 3 at 15).

Neither party disputes that the two maintenance tasks at hand—chemical treatment of boiler feedwater and manual bottom blowdowns—must occur more frequently than on a quarterly or annual basis. (See Pl.’s Ex. 50 (McHugh Dep.) 119:6–10 (conducting blowdowns “is one of the time-consuming tasks. They do that twice a day . . . .”)). Because the unambiguous terms of the contract only require Schneider to conduct quarterly or annual maintenance on the boilers, it follows that the contract viewed the more routine maintenance tasks, including chemical treatment of the feedwater and bottom blowdowns, as USDA responsibilities. The United States has not provided an alternative interpretation of the express language relied on by Schneider nor has it relied on alternative provisions in the contract that would render such language ambiguous.

See Jowett, Inc. v. United States, 234 F.3d 1365, 1368 n.2 (Fed. Cir. 2000) (“A contract provision or clause is ambiguous only if it is susceptible to two different and reasonable interpretations, each of which is found to be consistent with the contract language.”). Therefore, Schneider is correct as a matter of law, that USDA was responsible for conducting regular maintenance of the boilers; consequently, USDA’s failure to conduct such regular maintenance constitutes a breach of the contract.

However, a genuine issue of material facts remains as to the materiality of this breach.

Determining the materiality of a breach always considers the totality of events and circumstances around performance, including the nature and effect of the breach and how the contract was viewed, bargained for, entered into, and performed. Stone Forest, 973 F.2d at 1552. Here, the United States continues to dispute that failure to chemically treat the boiler feedwater or conduct manual blowdowns caused the boiler failures. (Def.’s Resp. at 36–8). Instead, the United States maintains that Schneider’s failure in installing automatic surface blowdowns at the onset of performance and/or Schneider’s failure to properly train USDA about the need to conduct blowdowns is the main cause of the boiler failures. (Id. at 38). Although Schneider disagrees with the United States’ contention that installing automatic blowdowns from the onset would have obviated the need for conducting manual blowdowns, it has not met its burden of showing that there are no “unexplained gaps” in the evidence: such as whether the contract did indeed require Schneider to install top blowdowns, and if so, whether installing automatic top blowdowns would have eliminated the need for conducting daily bottom blowdowns. Adickes v.

S.H. Kress & Co., 398 U.S. 144, 160 (1970); see also Anderson, 477 U.S. at 255 (finding that in determining whether factual disputes remain, the court must draw inferences in favor of the nonmoving party). Because Schneider bears the burden of proof, summary judgment cannot be granted unless Schneider makes a showing on each required element and unless the United States’ response fails to raise a genuine issue of material fact as to every element. Lencco Racing Co. v. Jolliffe, 1999 U.S. App. LEXIS 14239 at *9–10 (Fed. Cir. 1999). The United States’ factual disputes over the ultimate cause of the boiler failures as well as Schneider’s own installation obligations under the contract produces genuine issues of material fact as to whether failure to conduct daily maintenance by USDA was a material breach. Therefore, the Court denies Schneider’s motion for summary judgment as to Count II. 16 i. Denial of Access to BAS
It is undisputed that by early 2019, USDA unilaterally canceled Schneider’s remote access to BAS—USDA’s automation system for controlling and monitoring the performance of the energy-saving systems. (Def.’s Resp. at 9). USDA states that it denied Schneider access because USDA “had concerned about its cybersecurity.” (Id.). Subsequently, a hard drive failure, which the United States attributes to “an overload of failure notices related to the boiler failures,” permanently disabled the BAS system. (Pl.’s Ex. 48 (USDA Quality Assurance Specialist, Christopher Mehelis’s Dep.) 63:6–64:15). Schneider claims that its access to the BAS was “a critical requirement” to “inspect the ECMs and electronically report its findings to the USDA.” (Pl.’s Mot at 23). Specifically, Schneider claims that the BAS allowed Schneider to “obtain information for measurement and verification purposes,” determine energy savings, and “monitor and troubleshoot boilers issues.” (Id.).

Schneider has not shown that denial of access to BAS was of vital importance or went to the essence of the contract so as to constitute a material breach. Thomas v. Dep’t of Hous. & Urban Dev., 124 F.3d 1439, 1442 (Fed. Cir. 1997). Although it is undisputed that BAS allowed Schneider to monitor systems performance and measure energy savings, Schneider has not established with enough particularity the exact link between lack of access to BAS and the specific boiler failure issues in this case. Schneider merely states that BAS was “one of the key pieces of equipment updates” under the contract and that it “allow[ed] Schneider to measure and verify energy savings under the ESPC, the underlying reason the parties entered into the ESPC.” (Pl.’s Mot at 47). Yet, as previously noted, the United States did not terminate the contract because of a shortfall in energy-savings guarantees but instead for specific boiler operational failures. Schneider has not established how ongoing access to BAS would have allowed it to remedy the boiler failure issues listed referenced in the termination decision or detailed in the July Memo. (Pl.’s Ex. 41, 42). Without this link, the materiality of any perceived breach by the United States in denying access to BAS remains a question of fact to be resolved at trial.

Furthermore, parties also maintain a factual disagreement over whether USDA took adequate steps to restore BAS access and whether the parties “reached a mutually-agreeable solution” to substitute on-site visits for BAS access. (Def.’s Resp. at 9). These factual disagreements foreclose a decision at the summary judgment stage on whether the United States breached any contractual duties to guarantee access to BAS or, if so, if such breach was excused or waived through Schneider’s actions. Crown Operations Int’l, Ltd. v. Solutia Inc., 289 F.3d 1367, 1377 (Fed. Cir. 2002) (finding that at the summary judgment stage, the moving party has the burden to show that “there is an absence of evidence to support the non-moving party’s case.”) (citing Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). Therefore, the Court denies Schneider’s motion for summary judgment as to Count III.

III. Conclusion
The United States took the drastic decision of terminating Schneider for default after receiving 91.45% of the value of the contract. (Pl.’s Ex. 62). The United States’ defense of its decision to unilaterally withhold progress payments at that stage and its underlying reasoning for termination is unpersuasive. Contract law keeps an attentive eye on the exercise of default 17 termination power, having recognized that the power causes “a drastic adjustment of the contractual relationship.” Clay Bernard Sys. Int’l, Ltd. v. United States, 22 Cl. Ct. 804, 810 (1991). And so, the Court strongly adheres to the principle, also reflected in FAR, that the termination decision must be governed by the provisions of the contract. The United States’ approach in unilaterally withholding payments bypassed the Measurement and Verification procedure of the Contract. The United States’ default termination analysis also contorted the Contract’s stated goals and performance metrics. Feeling aggrieved by aspects of Schneider’s performance—rightly or wrongly—the United States’ freewheeling stroll down the road to default termination involved turning away from the paths specifically laid out by the Contract’s terms. The party that hastily diverts from the path provided by the contract’s terms is bound to meet its destiny on the road it took to avoid it. In such cases, FAR’s course correction involves converting an improper default termination to one for convenience.

The Court finds that the United States materially breached its payment obligations before terminating the Contract and that the CO’s reasoning behind the termination decision did not align with the terms of the contract. Therefore, it is hereby ORDERED as follows:
(1) Schneider’s motion for summary judgment as to Count I is GRANTED. (2) Schneider’s motion for partial summary judgment as to Count II is DENIED. (3) Schneider’s motion for partial summary judgment as to Count III is DENIED. (4) Schneider’s motion for partial summary judgment as to Count V is GRANTED.

Pursuant to discussions held with the parties during a status conference on January 10, 2023, the Court ORDERS the parties to meet and confer within the next five days regarding further proceedings. The Court will issue a separate order scheduling a status conference to discuss the schedule for the remainder of this case.

IT IS SO ORDERED.
s/ David A. Tapp
DAVID A. TAPP, Judge

Brentwood City CouncilJanuary 14, 2025

Brentwood City Council
January 14, 2025