FAR 23.202—Policy.
Plain-English Summary
FAR 23.202 explains the federal policy for using energy savings performance contracts (ESPCs) to reduce energy use and operating costs in agency facilities and operations. It covers the government’s preference for using ESPCs when they are life-cycle cost-effective, the basic structure of an ESPC, the 25-year contract limit, and the fact that the energy service company finances the upfront capital costs and is repaid from a share of the resulting savings. The section also addresses the relationship between ESPCs and FAR subpart 17.1, the required solicitation and award procedures under 10 CFR part 436, subpart B, the optional use of DOE’s Qualified List of energy service companies, and the special rules for unsolicited proposals under FAR 15.603(e). In practice, this section tells agencies and contracting officers how to lawfully structure and compete ESPCs, and it signals to contractors that these projects are long-term, savings-based arrangements with specific regulatory procedures rather than ordinary construction or service contracts.
Key Rules
Use ESPCs when cost-effective
Agencies should make maximum use of ESPC authority when the arrangement is life-cycle cost-effective. The policy is aimed at reducing energy consumption and costs in agency facilities and operations, not simply at funding projects with the easiest upfront financing.
ESPCs may run up to 25 years
An agency may contract with an energy service company for a period not to exceed 25 years. The long term allows the contractor to recover financing and implementation costs through the savings generated over time.
No direct Treasury capital cost
Under an ESPC, the energy service company finances the capital costs of the energy conservation measures, so the project can be implemented at no direct capital cost to the United States Treasury. Repayment comes from a contractually determined share of the savings, not from traditional upfront appropriations for the capital work.
Subpart 17.1 generally applies
Except as provided in 10 CFR 436.34, ESPCs are subject to FAR subpart 17.1. That means agencies must consider the contract term and related multiyear contracting requirements and limitations when structuring the agreement.
Use DOE procedures and terms
To solicit and award an ESPC, the contracting officer must use the procedures, selection method, and terms and conditions in 10 CFR part 436, subpart B. This makes the DOE framework the controlling process for competition and award of ESPCs.
Qualified List may be used
The contracting officer may use the Department of Energy and other agencies’ Qualified List of energy service companies. This can help identify capable firms, but it is permissive rather than mandatory.
Unsolicited proposals follow FAR 15.603(e)
Procedures for unsolicited proposals for energy savings performance contracts are addressed separately in FAR 15.603(e). Agencies should not treat unsolicited ESPC ideas as if they were standard competitive solicitations without checking the special proposal rules.
Responsibilities
Agency
Use ESPC authority to the maximum extent practicable when the project is life-cycle cost-effective. Ensure the project structure complies with the applicable energy and contracting rules, including the long-term contracting framework.
Contracting Officer
Apply the required DOE procedures, selection method, and contract terms and conditions when soliciting and awarding an ESPC. Also determine whether the Qualified List will be used and ensure any ESPC complies with FAR subpart 17.1 and the cited DOE regulations.
Energy Service Company
Finance the capital costs of the energy conservation measures and perform the work needed to improve energy efficiency. The company is repaid through a contractually determined share of the savings generated by the project.
Department of Energy
Provide the regulatory procedures, selection method, and terms and conditions in 10 CFR part 436, subpart B, and maintain or support the Qualified List referenced for ESPC use.
Practical Implications
ESPCs are savings-based, not ordinary upfront-funded projects, so the contracting officer must verify that projected savings are real and life-cycle cost-effective before proceeding.
Because the contract can last up to 25 years, agencies need to think carefully about term length, measurement and verification, and how savings will be calculated and paid over time.
A common pitfall is using standard FAR procedures instead of the DOE-required ESPC procedures; the solicitation and award process must follow the cited energy regulations.
Another risk is assuming the Qualified List is mandatory or sufficient by itself; it is only an optional tool and does not replace the required evaluation and award process.
Unsolicited ESPC ideas require special handling under FAR 15.603(e), so agencies should not shortcut the process or accept proposals without checking the applicable unsolicited proposal rules.
Official Regulatory Text
(a) Agencies should make maximum use of the authority provided in the National Energy Conservation Policy Act ( 42 U.S.C. 8287 ) to use an energy savings performance contract (ESPC), when life-cycle cost-effective to reduce energy use and cost in the agency's facilities and operations. (b) (1) Under an ESPC, an agency can contract with an energy service company for a period not to exceed 25 years to improve energy efficiency in one or more agency facilities at no direct capital cost to the United States Treasury. The energy service company finances the capital costs of implementing energy conservation measures and receives, in return, a contractually determined share of the cost savings that result. (2) Except as provided in 10 CFR 436.34 , ESPC's are subject to subpart 17.1 . (c) To solicit and award an ESPC, the contracting officer— (1) Must use the procedures, selection method, and terms and conditions provided in 10 CFR part 436, subpart B ; and (2) May use the “Qualified List” of energy service companies established by the Department of Energy and other agencies. (d) For procedures related to unsolicited proposals for energy savings performance contracts, see 15.603 (e). (e) For more information see https://energy.gov/eere/femp/energy-savings-performance-contracts-federal-agencies .