PBS Should Improve Its Oversight of the Energy Savings Performance Contract in Texas and Louisiana

Why We Performed This Audit

This audit was included in our Fiscal Year 2024 Audit Plan. We previously issued two audit reports outlining the risks of energy savings performance contracts (ESPCs) if they are not carefully managed with quantifiable energy conservation measures (ECMs) to determine actual savings. Those audit reports showed that GSA’s Public Buildings Service (PBS) did not effectively plan for achieving energy savings at the award level and could not verify and achieve energy savings once the ECMs were in place.

The objective of this audit was to determine whether PBS awarded and administered the ESPC task order in Texas and Louisiana in accordance with applicable regulations and guidance.

What We Found

Federal agencies use ESPCs to procure energy savings and facility improvements with no upfront capital costs or special appropriations from Congress. Under an ESPC, the energy service company (ESCO) finances the project, and the energy cost savings generated by the improvements are used to pay back the investment over time. The ESCO guarantees that the improvements will generate energy cost savings sufficient to pay for the project over the term of the contract.

ESPCs are multi-year contracts, with terms not to exceed 25 years. Therefore, it is imperative that PBS properly awards and administers these contracts to protect taxpayer dollars. However, we found deficiencies in PBS’s award and administration of the ESPC task order supporting 10 buildings across Texas and Louisiana. Specifically, PBS violated contract requirements and its own policy and guidance by: (1) not witnessing and verifying the ESCO’s energy baseline measurements and (2) allowing operations and maintenance (O&M) contractor employees to serve as government witnesses and sign the baseline witnessing forms. As a result, PBS improperly relied on the ESCO’s data to negotiate the contract’s guaranteed energy savings and annual savings performance goals.

We also found that PBS did not issue contract modifications that were needed to authorize and implement scope-of-work changes. In one instance, PBS incurred $71,920.47 in unnecessary costs because it did not issue a contract modification to prevent the installation of window inserts that were no longer needed at The Centre Phase 5 building in Farmers Branch, Texas. In another instance, a PBS employee improperly authorized a change to the scope of the ESPC task order for a high-efficiency transformer without obtaining the required corresponding contract modification from the contracting officer.

What We Recommend

We recommend that the PBS Commissioner ensures:

1. PBS personnel responsible for measurement and verification activities:
   1. Are adequately trained to understand how to perform their oversight responsibilities in accordance with the U.S. Department of Energy’s Federal Energy Management Program guidance;
   2. Independently witness, verify, and document the ESCO’s baseline measurements; and
   3. Adhere to PBS’s policy to ensure O&M contractor employees do not serve as government witnesses for ESPCs.
2. The project team establishes communication protocols by developing an effective communication plan that is consistent with the PBS Project Management Practice Guide V.2 to prevent the government from incurring unnecessary costs.
3. Contracting officers authorize contract changes and implement them through contract modifications, in accordance with the Federal Acquisition Regulation (FAR).

The PBS Commissioner partially agreed with the report recommendations. PBS’s response can be found in its entirety in Appendix C.