The City of Cape Town has conducted a number of Energy Performance Contracts. The lessons from these projects have been captured in this case study. The section below is a excerpt from this case study, which summarises the procurement process that the city has follow in implementing these projects. 

Over the four years that the City of Cape Town has been engaging with energy performance contracting, it has refined its approach considerably. This Case Study explores the most recent (2013) model being used by the City of Cape Town in this regard.

To ensure that the municipality complies with the financial controls laid out in the Municipal Financial Management Act (No 56 of 2003) (MFMA) the process of procuring a service provider for an energy performance contract is conducted in two stages. These are described in the following sections.

Stage One: Contracting a service provider and completing detailed audits

Stage one of the tender process involves securing a service provider to undertake detailed audits of each of the buildings for which energy efficiency measures are to be implemented in terms of the contract. The service provider is paid to undertake these detailed audits. The purpose of the first stage is to identify, through the audits, a suite of energy efficiency interventions that can be implemented in the various buildings along with the pay-back periods for these interventions.

To initiate Stage One, the City of Cape Town issues a tender calling for “Provision of a service provider for detailed audits and energy efficiency interventions at council building complexes”. The tender requests bidders to quote on the following key items:

1. The cost of detailed energy audits of the identified buildings.
2. The mark-up percentage the bidder would impose on cost of materials, labour and disposal for the implementation of the selected energy efficiency interventions. Since bidders would need to complete a detailed audit of each of the buildings in order to identify and accurately cost all the possible energy efficiency interventions, the bidders are not asked in Stage One to provide a full cost estimate for energy efficiency interventions. 
3. Extra-over normal fees and disbursements, including items like the procurement of an occupational health and safety professional, printing and copying, travel expenses, behaviour change and capacity building programme and accessing Eskom’s Integrated Demand-side Management Funding.
4. Evaluation of the cost effectiveness of the intervention taking into account both the costs of implementing the intervention and the ongoing maintenance costs of the intervention. 

Once responses have been received from interested bidders, a detailed review of all the responsive bids is completed by a Bid Evaluation Committee (BEC) convened specifically for the tender. The recommendation of the BEC is then referred to the central Bid Adjudication Committee (BAC) of the City of Cape Town. Once the BAC has made a final decision, the preferred bidder / service provider is appointed.

On receiving a formal appointment, the winning service provider proceeds to undertake detailed energy audits of each of the buildings identified in the tender to establish a baseline for energy use and to identifying energy efficiency interventions that can be implemented. Using the results of the audit as a basis, the service provider then proposes a suite of energy efficiency interventions for each of the buildings. The following details must be provided for each proposed intervention:

1. The cost of the intervention. This includes the cost of materials, labour, disposal of materials and service provider mark-up.
2. The amount of energy in kWhs that will be saved through implementing the intervention.
3. The pay-back period of the intervention.
4. An Stage Two: Implementation of interventions and performance guarantee

Stage Two of the process involves the implementation of the energy efficiency interventions and the ongoing evaluation of the success of the interventions.

Stage Two is initiated with the selection of a preferred suite of interventions by the City of Cape Town. Using the results of the detailed building audits, relevant municipal staff select a sub-set of interventions that are deemed most cost effective for each building. The service provider then implements the selected interventions in the various buildings concerned and is paid for the implementation of these interventions.

Once the interventions are in place and the service provider has been paid for the completed interventions, the performance guarantee period starts. The service provider is required to manage and maintain the installations and to guarantee performance for the entire pay-back period of the interventions. For example, if it is anticipated that it will take 5 years for the City of Cape Town to recoup the costs of the interventions through energy savings, the guarantee period will be 5 years. For ease of management the guarantee is managed in twelve month cycles.

The first twelve month cycle is initiated within fourteen days of completing the installation of the interventions. At this point the service provider is required to lodge a performance guarantee with the City of Cape Town in the form of a bank guaranteed cheque. The performance guarantee must be for the amount of money that the service provider predicted the interventions would save the municipality over a twelve month period.

During the performance guarantee period the energy usage of the buildings is monitored and compared against historical energy usage prior to the implementation of the interventions. This information is used to determine the total energy savings that can be attributed to the interventions completed by the service provider.

There are three possible scenarios for the release of the guarantee:

1. The energy saving installations outperform expectations and twelve months of savings are achieved earlier than expected. In this scenario the municipality will release the service provider from its performance guarantee as soon as the savings are achieved (i.e. prior to the completion of twelve months). The service provider then provides the municipality with a new performance guarantee cheque for another twelve month period. Releasing the guarantee before the twelve month period is complete and immediately starting the next twelve month contract shortens the length of time the service provider is expected to guarantee performance. Since the earlier release of the guarantee is beneficial to the service provider, this provides an incentive for the service provider to exceed performance targets. 
2. The service provider meets expectations and the total savings for the twelve month period are achieved in the expected time frame. In this scenario, the performance guarantee is released at the end of the twelve month period and the service provider will then issue the municipality with a new performance guarantee cheque for the next twelve months. 
3. The service provider does not meet savings expectations with in the twelve month period. In this scenario the service provider is required to pay the municipality the amount for any savings not achieved. Once this payment has been made the municipality releases the performance guarantee and the service provider issues a new performance guarantee for the next twelve month period. 

Once the specified pay-back period for the combined interventions completed in a building has been reached, the cycle of issuing twelve month guarantees ends and the contract is complete.