Pay for performance. It’s arguably been absent from government contracting for at least 200 years. But that could change soon.
Amory Lovins, chairman and chief scientist of the Rocky Mountain Institute, indicated that the federal government is contemplating a compensation plan in its federal building programs that will lead to bonus payments, or penalties, to contractors on green buildings and retrofits.
“Performance-based fees. We may soon see this adapted by some federal agencies,” he said.
Some people have begun to build performance fees into their construction contracts and many others have suggested increasing their scope and use. The difference here is that Lovins is about as well connected in the green world as anyone. Thus, if he says that federal agencies may adopt it, he’s probably hearing it from fairly high up. (Lovins spoke at the Scaling Up conference sponsored by the Asia Society in San Francisco last week.)
These programs work as follows: A contractor agrees to erect a building or install something like an energy efficient air conditioner. The contractor gets paid. Meanwhile, the owner/occupier of the building tracks how well the system works. If it cuts power by 20 percent, let’s say, the contractor may get a check for 50 percent of the savings. If it fails to perform as advertised, the contractor kicks back some of the funds earned in building the structure.
Retrofit occupies a significant part of the American Recovery and Reinvestment Act. In all, $4.5 billion will be spent retrofitting federal buildings and another $6.3 billion goes to grants for improving the energy efficiency of state agencies. A substantial portion of that money will likely go to buildings. Architects and builders say schools will undergo major overhauls in the next few years. Several million more will go into weatherizing homes.
Performance-based fees would help alleviate one of the major problems in green buildings. Namely, that they sometimes don’t work as advertised. Most of the gains in energy efficiency can be obtained through clever design changes and careful selection of building components. In his own house in Colorado, Lovins does not have an air conditioner or a heater, even though it soars to above 100 in the summer and well below freezing in the winter outside. Temperature is regulated through good insulation and “superwindows,” double paned windows with membranes and trapped gases inside them to prevent heat from coming in our out.
Studies have shown that constructing a building to LEED standards does not correlate to a higher construction price, he said. (Others have said that the price for going LEED can range from 2 percent to 6 percent, or still somewhat nominal.)
Even office buildings can be made with small to nominal HVAC systems if designed correctly. The Chriesbach building in Switzerland is six stories but only has a household size HVAC system because it is superinsulated. HVAC gobbles power: 50 percent of China’s peak load power goes toward air conditioning.
Designing a building to avoid heat loss or reduce the need for electric lights, however, is tricky and takes experience. Few people are actually skilled in putting in water systems that only need small pumps or light shelves, which reflect sunlight onto ceilings to reduce the need for interior light. In a lot of cases, owners are paying to educate their builders, he said. Performance bonuses could help alleviate that.
He’s also an advocate of PACE bond financing, which work toward a similar end.
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