1 1 2 3 4 5 6 GOVENERGY CONFERENCE 2007 7 HILTON NEW ORLEANS RIVERSIDE 8 KABACOFF ROOM 9 TWO POYDRAS STREET 10 NEW ORLEANS, LOUISIANA 11 AUGUST 8, 2007 12 3:00-5:00 P.M. 13 14 15 16 17 18 19 REPORTED BY: 20 TERRY L. OWENS, RPR, CCR 21 22 23 24 25 2 1 MR. DARYL BERG: 2 Well, good afternoon. Everybody 3 welcome to the GovEnergy Conference, 4 before David starts with his karaoke 5 contest. 6 The topic for this afternoon is to 7 talk a little bit about the DOE 8 recompete of the ESPC IDIQ contracts, 9 and we are going to talk a little bit 10 about the process, why the government 11 does what it does in their procurements, 12 and then we will open up and give 13 you-all the opportunity to voice your 14 concerns or let you know what -- let us 15 know what your issues are regarding the 16 recompete and the draft RFP that was 17 issued. 18 So I will turn it over to David 19 Rodgers. 20 MR. DAVID RODGERS: 21 Thank you, Daryl. Good afternoon, 22 Everyone. I'm going to try to make it 23 through this short introduction without 24 keeling over from exhaustion. I think 25 if you have been here all week like I 3 1 have, this has been one hell of a 2 conference, a fantastic event. 3 Hopefully this part, that word doesn't 4 go into the transcript. 5 But -- so -- and I know you-all 6 have many other things to be working on. 7 You have got sales leads to follow up 8 from this conference. We have got -- 9 but I just wanted to say a few words 10 about why we are here and how important 11 this is to us. 12 The secretary met with many 13 leading energy service companies, the 14 ones that are on our current IDIQ 15 earlier today. He met with several 16 others today, and then he gave this key 17 note address and he announced the launch 18 of our team initiative at the Department 19 of Energy. And in about 10 minutes, I 20 get to go talk to the Wall Street 21 Journal about the team initiative. And 22 so if we ever thought that we were going 23 to make news about energy efficiency 24 through these efforts, we were right. 25 So that makes it all the more important 4 1 that during this process here, which to 2 the Wall Street Journal is not on their 3 radar, but it's critical to the future 4 of our program. And so it's critical 5 that we get this recompetition done 6 right. 7 And so Daryl and his team have 8 already, through our regular systems, 9 received some 600 comments, and I 10 believe our responses to those have been 11 posted this week. 12 MR. DARYL BERG: 13 Yes. 14 MR. DAVID RODGERS: 15 But I want you to know that I know 16 how to use IIPS and so -- but I don't 17 like to use IIPS and I'm sure not a lot 18 of people do. And so what we are trying 19 to do with this session is to go another 20 few yards in the direction of being 21 open, listening and absorb your very 22 important comments and input on the 23 design of the request for proposals. 24 Our goal is speed, but our second -- our 25 other goal, equally as important, is 5 1 quality. So your comments here today 2 are very much appreciated. I encourage 3 you to be as open as you possibly can 4 within the context of your own business 5 needs, et cetera. 6 These folks here have to obey 7 certain rules about what they can say, 8 how much they can respond, how much they 9 can answer. They may not be able to 10 say, "Yes, we will do that," "No, we 11 won't do that." In fact, they probably 12 can't say any of that. But what they 13 can say is, "What did you mean by that? 14 Could you explain that more," so that 15 you can as effectively as possible tell 16 us what's really the issue that you want 17 us to deal with, and then this team will 18 take that back to the office and will 19 incorporate those as best we can within 20 the constraints that we are under. 21 So I just wanted to say, number 22 one, thank you for spending the last day 23 of the conference or the last afternoon 24 changing your flights so that you could 25 be here and participate. Number two, 6 1 thank you for the comments that you have 2 already made, and number three, thank 3 you for the comments that you will make 4 today. 5 With that, I'm going to turn it 6 over back to the contracting team, but I 7 just want to tell you, the secretary was 8 truly touched by his experience here 9 this week. He said so earlier today 10 when he got to meet the kids at the 11 school and talk about having energy 12 efficiency, rebuilding New Orleans 13 schools better than they were before. 14 And I think you folks know what that 15 feeling is like because you provide 16 those services to our agencies every day 17 of the week. So I'm grateful to you for 18 what you have already done and for what 19 we are about to do, and now I guess I'll 20 leave you to the work and I will go talk 21 to the Wall Street Journal about all the 22 good things that you are doing and that 23 we are doing together. 24 Thank you very much. 25 MR. DARYL BERG: 7 1 Thank you, David. For those of 2 you that don't know me, my name is Daryl 3 Berg. I work for the Department of 4 Energy, obviously, at the Golden Field 5 office in Golden, Colorado. I have 6 several jobs, but what you need to know 7 is I'm the contracting officer for the 8 recompete of the DOE ESPC IDIQ contract. 9 IDIQ means Indefinite Delivery/ 10 Indefinite Quantity. 11 To my left, your right, is Julia 12 Trautman. She is the contract 13 specialist for the recompete as well as 14 the existing IDIQ contracts that DOE 15 Golden Field office administers. 16 And for those of you that missed 17 the opening ceremony or don't know who 18 David Rodgers is, he has multiple hats 19 and he's here -- he was here earlier 20 primarily as the acting FEMP program 21 manager and he also is the Deputy 22 Assistant Secretary for Energy 23 Efficiency, I think, or is it -- Energy 24 Efficiency. 25 So what's going to happened today 8 1 is I'll talk a little bit about some 2 general overview of the government 3 procurement process and why we do what 4 we do and why we have to be vague 5 sometimes and secretive other times. 6 And after we get done with that and 7 answer your questions to the point where 8 you are comfortable with that process, 9 I'll turn the microphone back over to 10 you-all. And the way we would like to 11 do this is have you come up to the 12 podium with the microphone so that our 13 stenographer, her tape recorder can pick 14 up your voice. And that's important to 15 us because she's taking notes so that we 16 can have an accurate record of what your 17 issues are and what your -- and what 18 your rationale is for those issues so 19 that we can take it back to the right 20 people and try to resolve them. Her 21 transcript will be posted onto the DOE 22 IIPS system in about a week, week to 23 two, I think is the deadline, she has a 24 week to finalize up all of her notes and 25 it might take us a day or two to get it 9 1 posted. 2 And what else? I was supposed to 3 give a disclaimer. If I accidentally 4 commit to changing something or doing 5 something that sounds like a good idea 6 and it's logical, the disclaimer is is 7 whatever ends up in the final RFP takes 8 precedence. Did I -- she was about to 9 remind me of that, I could see that. 10 For those of you who have used the 11 DOE IIPS system, you will realize it 12 isn't that much different than other 13 government web-based systems for their 14 procurement. It's -- it's challenging 15 to use. It's not intuitive defined 16 information on there. I realize that. 17 Out in the field that's beyond our 18 control. It's a mandated web-based 19 program that we have to utilize at DOE. 20 And if you haven't went in there and 21 looked, what we have done is every time 22 we have some information that we want to 23 share publicly, we issue what we call a 24 special notice onto IIPS. And IPPS is 25 also referred to sometimes as the DOE 10 1 E-Center, so that can be a confusing 2 thing. 3 And oh, I forgot -- you forgot to 4 remind me. We had some technical 5 difficulties of -- with the room 6 coordination. We were going to have 7 Internet access, PowerPoint and a screen 8 to bring you to IPPS and show you how to 9 navigate it and that fell through, so I 10 apologize for that. 11 But the way you get to IPPS, if 12 you haven't done so already, is go to 13 the URL http://e-center.doe.gov. And 14 there are several ways to find 15 information about this recompete. But 16 if you click on "Browse Opportunities" 17 and then it will allow you to search by 18 a number of different methods. If you 19 click on "Contracting Officer," I'm one 20 of the first names to pop up, Daryl 21 Berg, and you can click on that and you 22 will find everything that we have posted 23 on IPPS regarding this ESPC recompete. 24 And you will see that we issued 10 25 special notices to try and get out 11 1 information and request feedback from 2 you-all on what's important to you and 3 we -- in addition to those 10 notices we 4 issued a draft RFP, which as was pointed 5 out earlier, we received several good 6 quality comments about the draft RFP. 7 And I can tell you that I was a little 8 skeptical in the beginning about issuing 9 it because I knew it would slow us down 10 and speed was important to us to get 11 this recompete completed, as David 12 mentioned earlier, but the value we got 13 out of receiving those comments far 14 outweighed the price we paid in speed. 15 The comments, although some duplication, 16 but that's important because to some 17 extent duplication shows the amount of 18 people that -- well, it shows 19 consistency and concern and it shows to 20 some extent some importance of issues. 21 If more people are interested in a 22 certain issue, we might weigh that more 23 heavily. Sometimes other things are 24 important, too, that weren't commented 25 on that often. 12 1 Out of the 600 some-odd comments 2 that we got, it seemed like there were 3 three general concerns that seemed to be 4 prominent. The first was the amount of 5 risk being put on the ESCOs for -- to 6 show energy savings and who would take 7 various weather risk, energy rates risk, 8 et cetera. The other recurring theme 9 was the idea of having on ramps and off 10 ramps where you would maintain the 11 existing ESCOs and just add new ones or 12 have the ability to add new ones later 13 on, and the off ramps to get rid of the 14 poor performers. 15 Another recurring issue was -- 16 well, let me backtrack a little bit. In 17 government when we establish an 18 IDIQ-type contract, you are required to 19 have a minimum guarantee where the 20 government guarantees that the ESCO will 21 meet or will get at least this amount of 22 work or this amount of money, and if for 23 some reason they don't, the government 24 has to pay them that amount of money. 25 In this particular case, the draft RFP, 13 1 I think, suggested $5,000. So the idea 2 being is if you don't get any work, the 3 ESCO at least gets $5,000 for their 4 trouble. 5 The second thing that is required 6 by an IDIQ is to have a maximum ceiling, 7 maximum order ceiling. The draft RFP 8 mentioned a billion dollars per -- per 9 IDIQ contract, and that was the sum of 10 contractor payments, not the investment 11 on them. And there were several people 12 that were concerned that that wasn't 13 going to be high enough. So I just -- I 14 bring -- I highlight those three because 15 I've -- we are aware of those issues. 16 Now, this afternoon it's fine for 17 you to revoice those concerns, but it's 18 more important -- well, as important or 19 more important to know the why that is a 20 concern from -- because in the 21 government procurement process, the way 22 it works is we try to draw on the 23 expertise of several people throughout 24 the government to craft this RFP that 25 will subsequently become the contract. 14 1 We have the good ideas and then it goes 2 through several approval -- internal 3 approval processes at the field level 4 and at the headquarters level. And I 5 don't think it's bad to tell you that 6 sometimes the field gets into battles 7 with the headquarters element on what we 8 think is important in the field and they 9 may think it isn't important or that 10 it's against rules or what have you. 11 So there may be something that 12 concerns you that also concerns me out 13 in the field and I need the why in order 14 to make a decision on whether I use that 15 extra ammunition to make my point up 16 higher or the why to convince me to 17 change it and to also convince our 18 approval or our approvers. 19 So one of the most important 20 things in the government procurement 21 process, which is also one of the more 22 frustrating things to particularly 23 incumbent contractors, is that we are 24 required to have -- to level the playing 25 field, so to speak. Everybody, whether 15 1 you are an incumbent or whether you are 2 a prospective contractor, is going to 3 have the same opportunities to -- 4 throughout the procurement process. 5 That's been a bit of a challenge 6 with balancing the team initiative 7 because there is focus -- there is 8 concern that with the procurement 9 ongoing, that it takes away from the 10 team initiative of the ESCOs, and that's 11 part of the idea of on ramps and off 12 ramps. And I can tell you that all of 13 those things are being considered and -- 14 and we won't have any finality into 15 those ideas until the final RFP. 16 Now, another thing, there is a lot 17 of useful incumbents particularly, but 18 potential offerers have a lot of good 19 ideas, they bring a lot of experience, 20 and there is often, how should I say it, 21 there is often pressure to involve those 22 people that do this type of work on a 23 day-to-day basis to develop your RFP, to 24 develop your contract. But as part of 25 the level playing field, that prevents 16 1 the government from doing that. You 2 see, if an incumbent ESCO is involved in 3 developing the RFP or the statement of 4 work or the terms and conditions or the 5 evaluation factors, that gives those 6 folks an unfair competitive advantage. 7 So even though they have great ideas, 8 they are the experts, it doesn't keep 9 the playing field level and that's 10 one of the -- that's one of the 11 hallmarks of government procurements. 12 Let's see. So we are trying to be 13 fair. We are trying to listen. 14 Oh, the IIPS issue again. You 15 will notice that oftentimes we are vague 16 in our responses to your questions or 17 concerns. I can tell you that even if 18 the response is short such as, "Thanks 19 for the comment. We will take it under 20 advisement," or what have you, there was 21 a lot of thought behind the scenes of: 22 How do we incorporate this comment? 23 Does it make sense, is it legal, 24 et cetera? So even if the comment is 25 short, the thought that went into it was 17 1 long. We got several people together 2 for a significant amount of time to 3 review every single question and comment 4 that was in there. It was bounced off 5 of procurement, legal and technical 6 folks to look at the ability to 7 integrate that comment or answer that 8 question. 9 So I understand that you may not 10 have got your answer fully answered in 11 IIPS, but I can assure you that it was 12 considered. 13 Now, because I can't commit to a 14 change -- I can't commit to a change to 15 the RFP because of the process we go 16 through for approvals. So maybe I think 17 it's legal but someone up at 18 headquarters, OGC, doesn't, so it may 19 get changed in the review process. So 20 that's why I can't commit to yes, we are 21 going to change something. 22 Let me see. That's about all off 23 the top of my head I can think that's 24 relevant about the procurement process, 25 but I would like to throw it to you, 18 1 you-all, and you come up here and you 2 can feel free to voice your concerns 3 about the draft RFP that was issued or 4 ask me anything about the government 5 procurement process or why we do what we 6 do. It's all open game. 7 If I can't answer it, I apologize 8 in advance. I'll do my best to answer 9 it within the rules I'm bound by. 10 When you come up, introduce 11 yourself. It would be nice to know 12 where you're -- what company you are 13 from, so thanks. 14 And I know we have a friendly 15 crowd, but I got this voodoo doll just 16 in case things get out of hand. 17 MR. KEITH DERRINGER: 18 It's good to know. Keith 19 Derringer, Ameresco. 20 I guess I'd like to address one of 21 the things that you mentioned in your 22 opening remarks, and that was about -- 23 the concern about the contract capacity 24 and your desire to understand what -- 25 where our concern is coming from. And I 19 1 know as one of the incumbent ESCOs I 2 look at what we have in development 3 current, that's in the DES stage or near 4 the DES stage within the next week or 5 so. And also look at the team 6 initiative, and I see a situation where 7 we are anticipating having task orders 8 in place within the next 12 months that 9 would eat up 60 to 75 percent of the 10 capacity that you are talking about 11 doing for a contract. 12 And I think that where our concern 13 is coming from is that maybe these 14 limits are looked at by looking 15 historically about what's been done in 16 the past under these contract vehicles. 17 I think the environment we have 18 presently now over the last year and 19 going forward since we had 20 reauthorization is very different, and I 21 think with the 10 years or so we have of 22 reauthorization in front of us 23 currently, our concern is it's a lot of 24 work for you guys to go through this 25 process, it's a lot of work for us to go 20 1 through this process, and we felt like 2 that, you know, you needed to have a 3 higher contract limit. Either if you 4 are going to calculate it based on the 5 sum of all the payments, including issue 6 and ONM, et cetera, it needs to be a 7 higher number or you need to change your 8 methodology for calculating it. 9 MR. DARYL BERG: 10 I appreciate that. What number 11 would you recommend? 12 MR. KEITH DERRINGER: 13 I think if you are going to stick 14 with the calculation method that you 15 have, I think what we are looking at is 16 probably somewhere in the $10 billion 17 range. Obviously, the likelihood that 18 every contract you are going to award is 19 going to get to that limit may be a bit 20 remote, but I think you are going to 21 have some companies will be more 22 successful than others. That's what 23 this history has shown us over the last 24 10 years. 25 Another way you could look at it 21 1 is a shared contract ceiling capacity 2 among the contractors. 3 MR. DARYL BERG: 4 Like we kind of do on the regional 5 basis now? 6 MR. KEITH DERRINGER: 7 Yeah, right. 8 MR. DARYL BERG: 9 What number would you think for 10 that? 11 MR. KEITH DERRINGER: 12 I haven't given that a lot of 13 thought yet, to that scenario. That 14 sort of concern is coming up. 15 MR. DARYL BERG: 16 Thank you. 17 MR. DOUG SATTLER: 18 Doug Sattler, constellation 19 Energy. First and foremost, I would 20 like to thank you for giving us your 21 opportunity to, again, voice our 22 concerns and comment on where we are 23 with the draft RFP. In the draft RFP as 24 written, there is an indication, I don't 25 recall the language exactly, that the 22 1 contractor is essentially solely at risk 2 for all of the costs associated with the 3 initial proposal or preliminary proposal 4 and the investment grade audit unless an 5 award is made, and I was wondering what 6 the genesis of that statement was. 7 MR. DARYL BERG: 8 Let me pause and think for a 9 second on how I can answer that. 10 MS. BETH SHEARER: 11 I wanted to sort of fill that in 12 for you a little bit. 13 MR. DARYL BERG: 14 Yeah. 15 MS. BETH SHEARER: 16 Beth Shearer. I'm working with 17 Siemens Corporation. There are a couple 18 of clauses that I think fills in what 19 Doug was talking about. In particular, 20 for the initial proposal and the final 21 proposal, it's H.6.2. It says, "Final 22 proposals will be reviewed in accordance 23 with the instructions set forth in the 24 task order RFP. The agency will not be 25 responsible for any costs incurred such 23 1 as a proposal, preparation cost or the 2 cost incurred in conducting the IGA 3 unless a task order is awarded." 4 In the past it's always, you know, 5 once you got the notice of intent to 6 proceed, this was after the initial 7 proposal, if you did the investment 8 grade audit and it was not -- and it 9 didn't go to award, the contractor was 10 compensated. So what this is doing, in 11 essence, for the contractor is it's now 12 -- now the contractor has all the risk. 13 There is no shared risk. And this, you 14 know, you could spend as much as 15 $500,000 doing an IGA depending on the 16 complexity of the project. That's a 17 huge amount of money to ask the 18 contractor to take at risk. 19 Previously I think the language -- 20 you know, the language said they would 21 be compensated, and I wanted to take 22 this liability just a little bit further 23 in the statement of work, and in the 24 clauses for operation of ECMs, 25 preventative maintenance, repair of 24 1 ECMs, contractor response, repair and 2 response time. In each one of those 3 cases, it says, you know, if the 4 government does something and it affects 5 the project, then the government may 6 give due consideration to the contractor 7 for losses directly attributable to that 8 material failure. In the past it was a 9 "will" as opposed to a "may." So it was 10 much more of a shared risk situation. 11 And that's what I think, Doug, you were 12 trying to get at. 13 MR. DARYL BERG: 14 Thank you, Beth. Before I try to 15 craft a response, a follow-up question 16 to your question so that I understand 17 and others do, as well. The result of 18 having the ESCO take on this additional 19 risk, what are the repercussions to that 20 site or to the government? I guess what 21 I'm -- what I'm kind of thinking is if 22 the ESCO has taken on that risk, it 23 would result -- it could result in a 24 higher cost to the government because 25 the contractor has to build that risk 25 1 into their price, yada, yada, but I 2 don't want to put words into you-guys' 3 mouth. What are your concerns about 4 taking on the extra risk, is what I'd 5 like? 6 MS. BETH SHEARER: 7 Okay. Let me -- I'm going to 8 answer that as a recovering bureaucrat. 9 When I was at FEMP I had a little run-in 10 with the VA and we had a Come to Jesus 11 meeting and the VA had -- had accepted a 12 number of investment grade audits and 13 they were asked and was at the point of 14 awarding contracts when they said, "Hold 15 on, hold on, hold on. Let's take a look 16 at it." And at the time if the contract 17 read that the government would 18 compensate if -- you know, if it didn't 19 go to award, and so the VA was liable 20 for a fair amount of costs, I don't know 21 what it was at the time, and it was -- 22 and the government was honored bound by 23 that. 24 Now the government is not honored 25 bound, and help me out, Mark, but you 26 1 are taking on -- you know, you are 2 taking on a huge amount of cost for 3 which you may walk away penniless. Your 4 management will let you do that maybe 5 once or twice before they say, "This is 6 too much. We are getting out of this 7 business." So you risk losing your 8 ESCOs. Is that -- 9 MR. DOUG SATTLER: 10 If I could just add to that, it 11 effectively is a disincentive, the risk 12 associated with the IGA being shouldered 13 by the ESCOs entirely is that this 14 incentive in some ways for the ESCOs to 15 develop more and bigger projects, which 16 is precisely what we are all trying to 17 achieve, particularly in light of the 18 team initiative and energy security and 19 the Energy Policy Act. 20 MR. DARYL BERG: 21 Very good. Thank you. 22 MR. KEITH DERRINGER: 23 I'd like to add one thing to that. 24 I think giving you a further example of 25 how that can increase the cost to the 27 1 government, it's -- presently one of the 2 things that we try to do and we are 3 doing as DES is we try to take things as 4 far as we can to eliminate the areas of 5 risk for the government and for the ESCO 6 as far as what the project's going to 7 look like, what it's going to cost, what 8 the savings are going to be. If you are 9 pushing all of that risk over onto the 10 ESCO, it's going to kind of change, I 11 guess, the paradigm where we are all 12 trying to work together to minimize that 13 risk, where we are going to be trying to 14 minimize that shared risk, we are going 15 to try to minimize the costs that we are 16 trying to incur on the front end and try 17 to do more design effort after the tasks 18 are awarded, which is going to increase 19 the construction period which is going 20 to increase interest during 21 construction, costs for the project, 22 which the end result, you get less 23 improvements in the end. Okay. 24 MR. DARYL BERG: 25 And to follow-up to Doug Sattler's 28 1 question about the genesis of that 2 and -- unless you have a follow-up to 3 the same comment. 4 MR. JOHN SHAW: 5 John Shaw, Johnson Controls. I 6 think, Daryl, as it reflects this 7 provision, as it would reflect to the 8 government, what impact would it have to 9 the government? And simply put, it 10 would have to -- whatever everybody is 11 saying. But viewing it from the 12 government, you would have smaller 13 projects because contractors would take 14 less risk. You would have slower 15 projects because they wouldn't move as 16 fast and you wouldn't have as much 17 innovation or creativity because they 18 are going -- we are going to stick to, 19 you know, a proven set of technologies 20 that are simply not innovative because 21 we already know what they are. So you 22 will have smaller, slower and less 23 innovative projects for the government. 24 MR. DARYL BERG: 25 I understand the first and the 29 1 third. I'm not getting quite the 2 connection on why projects would be 3 slowed down. 4 MR. JOHN SHAW: 5 Well, they would be slowed down 6 because what you would -- I think to the 7 earlier point, you simply wouldn't do as 8 much work up front and so you would have 9 a -- your IP would not have the detail 10 that the government and the ESCO 11 community has become accustomed to on 12 the IPs in order to make sound 13 decisions. So I think you would -- what 14 you would do is bounce back and forth. 15 MR. DARYL BERG: 16 Okay. Okay. The genesis of the 17 change, I can't go into too much detail 18 other than to say that there was an 19 interpretation of some law, that's about 20 all I can say. And as I noted earlier, 21 whether I agree or disagree with it, 22 it's important to hear the rationale for 23 why you have a concern, so I appreciate 24 that. 25 The other, I just -- not to get 30 1 into a tit for tat, but I want to point 2 out in the existing IDIQ contract that 3 the idea of -- that the government, and 4 this has been a debate for some time, 5 whether the government is on the hook at 6 the point of the NOI being issued for 7 costs in developing the DES, and it's -- 8 like I say, it's interpreted different 9 ways by different people. But what the 10 existing contract says is that the final 11 proposals will be evaluated -- this 12 is -- let me see if I'm on the right 13 one. It's H25 of the existing IDIQ 14 contract. "Final proposals will be 15 evaluated and selected in accordance 16 with the criteria set forth in the 17 DORFP. The government shall not be 18 responsible for any costs incurred such 19 as proposal preparation costs or the 20 cost incurred in conducting the DES 21 unless authorized by the agency 22 contracting officer. 23 So it did give the agency the 24 ability to take on that stuff, but it's 25 a little bit of a twist on the facts to 31 1 say that it was -- that it was 2 necessarily the norm or the requirement 3 of the government to take on that. And 4 as you pointed out, basically what got 5 chopped off in the draft RFP was the 6 "unless authorized by the agency 7 contracting officer." So I think we are 8 on the same sheet on that one. 9 Another question concern, a 10 follow-up? 11 MR. BOB JOHNSON: 12 Daryl, Bob Johnson with Trane. I 13 want to pile onto this just a little bit 14 with two comments. Having been involved 15 in the VA situation that Beth so 16 eloquently brought up here, if I recall 17 correctly from that process, the VA 18 legal team reviewed the NOITA and they 19 determined that that, in fact, was a 20 contract. So it's confusing to me, 21 probably to the industry, as well, why 22 now there is a legal opinion that says 23 just the reverse. So both the H25 that 24 you referenced a minute ago, Daryl, but 25 also the H -- or the VA's decision at 32 1 the time, at that point in time they 2 decided that they would be obligated, in 3 fact, to pay the ESCO industry those 4 costs associated with the development of 5 those projects. So clearly something 6 has changed, not legislatively, but with 7 the thought process of whoever is 8 deciding this. 9 MR. DARYL BERG: 10 And as you pointed out, and as I 11 appreciate, that it is not uncommon to 12 interpret it that way, so I'm hearing 13 you on that. 14 MR. BOB JOHNSON: 15 Okay. The second thing is, it's 16 interesting to -- I just want to put 17 this into perspective. We are all here 18 with the Federal government and we look 19 at the Federal government as a clear 20 customer in the ESCO industry. In many 21 cases our customers in the other 22 markets, K through 12, state and 23 municipalities, they look upon the 24 Federal government contracts as a model 25 for how they would want to do business. 33 1 What you may, in effect, do as an 2 unintended consequence here is to take 3 this contract, put it out the way you 4 do, have it interpreted by our other 5 customers in other markets and in 6 essence slow down the industry. 7 Now, what does that mean? It 8 doesn't mean much except for the fact 9 that we are -- we are all looking at a 10 great externality here in terms of 11 global warming and the fact that we can 12 do more of these types of projects from 13 an energy efficiency standpoint gives 14 the -- not the industry but really our 15 society the greater point as to where we 16 are going to be better at what we do 17 using efficiency as, in essence, a 18 productivity. So I'm putting on a 19 bigger scale here, not to put more 20 burden on it, but to say this is really 21 a potential unintended consequence that 22 hasn't been necessarily been brought up 23 in the context of this contract but may 24 happy in the greater societal context of 25 this. 34 1 MR. DARYL BERG: 2 A follow-up question to you, Bob. 3 MR. BOB JOHNSON: 4 Yeah. 5 MR. DARYL BERG: 6 Just so I understand, do you 7 mean -- obviously you mean to some 8 extent that this new contract would be a 9 model for municipalities and the states, 10 but is your concern more in the part 11 about the risk being put on the 12 contractor and that having the negative 13 effects on projects or just everything 14 in general on the contract? 15 MR. BOB JOHNSON: 16 All the things that have been 17 stated here because of the project is 18 getting smaller, less sophisticated in 19 terms of what they do so we wouldn't 20 achieve if the energy savings we are 21 looking for. The effect we are talking 22 about here on the Federal government 23 projects would have the same effect in 24 those potential municipality, state, 25 public sector entities that would adopt 35 1 the provisions of this contract, seeing 2 the Federal government as the leader in 3 this particular area, and that's where 4 the disconnect would be. 5 MR. DARYL BERG: 6 Thank you. 7 MR. BOB JOHNSON: 8 Sure. 9 MR. ANDREW MORTON: 10 Andrew Morton with Johnson 11 Controls. I'm just going to piggy back 12 on all of this comment, but make two 13 statements. One is you are exactly 14 correct. A lot of people have always 15 assumed that in the contract it's 16 spelled out that there was an 17 obligation. We know that's not the 18 case. You read it to us. However, 19 that's always been the intent that the 20 industry has received as part of the 21 contract and the process, that's my 22 understanding, that you-all, Department 23 of Energy, train in your super ESPC 24 training workshops. 25 So I -- Bob Johnson and I lived 36 1 through the VA, putting the brakes on 2 the bus, so to speak, and throwing us 3 and many other ESCOs through the 4 windshield. But I just want to add to 5 his comment that not only did the VA 6 interpret the NOITA as a binding 7 agreement, we came in with our legal 8 counsel that had that same 9 interpretation that referenced several 10 other IDIQ models as a result. So I 11 just want to remind everybody that there 12 was many different legal opinions and if 13 we can maybe turn back to those and find 14 the rationale behind that and compare 15 that to what you are currently hearing, 16 I think it would add a lot of value. 17 Because there is no doubt from an 18 industry perspective, for us to take on 19 additional risk, I mean, ultimately in 20 the long run it's going to cost the 21 government a lot more money where there 22 is a potential. 23 MR. DARYL BERG: 24 My recollection, and I don't see 25 all the NOIT or the NOIs, and I know the 37 1 VA won, but I know that it's been an 2 interpretation of other agencies that 3 same thing, and if you-all have 4 references to those instances or what 5 that -- those other agencies thought of 6 as far as a commitment on the government 7 at the point of the NOI to reimburse 8 certain costs, that would be helpful to 9 me, as well. 10 MR. ANDREW MORTON: 11 Okay. So you want us to actually 12 come up with other agency -- 13 MR. DARYL BERG: 14 And points of contact would be 15 helpful to me. 16 MR. ANDREW MORTON: 17 We can do that. 18 MR. STEVE CRAIG: 19 Hi, Daryl. Steve Craig from 20 Honeywell. Just one point of 21 information on Andrew's comment. We 22 went through this with the United States 23 Coast Guard a couple of years ago, the 24 DES cost. I can get you the contact 25 person, but they went through a full 38 1 legal review and determined it is a 2 contract and it can be done, so we will 3 help you with the reference point there. 4 MR. DARYL BERG: 5 And, Steve, if I'm thinking the 6 same one, the way they did it is they 7 issued an NOI letter with a ceiling 8 dollar amount; is that correct? 9 MR. STEVE CRAIG: 10 Absolutely. 11 The other comment I have and just 12 the last -- maybe the last comment on 13 the DES cost, we are facing extended 14 selling cycles. It used to be nine 15 months, now it's 12 months, some are 16 16 months and 18 months, and it seems like 17 we just can't get people to commit. I 18 talked to my team a lot about, let's try 19 and get the customer to put a stake in 20 the game. You know, what's in it for 21 them? And if we take away the ability 22 to put a backstop in before we go spend 23 a half a million bucks on engineering or 24 200,000, if there is not that backstop 25 there, I see that there is really no 39 1 stake in the game by the government to 2 get something done. Sales cycles will 3 continue to get longer. The projects, 4 installation cycles will continue to get 5 longer costing the government more 6 interest rate. 7 The other comment I have is I 8 applaud you trying to put the contract 9 together to make it easier for the 10 agencies to do ESPC. That's a wonderful 11 thing. But I see this as groups of 12 people at the agency sitting around and 13 say, "Hey, let's go ahead and do this. 14 There is no cost to us." And we hand in 15 an initial proposal and it really -- 16 when we have a DES, it puts a stake in 17 the game. It makes them really think, 18 Do we want to go forward? I think if 19 there isn't anything there, we are going 20 to get people to say, Hey, let's go to a 21 more final proposal where we can get 22 better cost, and it's just we need some 23 stake in the game by the government and 24 I think we are losing it there. 25 MR. DARYL BERG: 40 1 Just so that I'm clear on what you 2 are saying here, is that it's important 3 to have the quality ESCO in doing good 4 work, but that it's as important to have 5 that site and the decisionmakers buy 6 into the project. And what you are 7 saying is if they have a vested 8 financial interest, it commits them to 9 the project more, speeds it up, a better 10 quality project. 11 MR. STEVE CRAIG: 12 Absolutely. 13 MR. DARYL BERG: 14 Okay. 15 MR. STEVE CRAIG: 16 Thank you. 17 MR. KEITH DERRINGTON: 18 To add a little to that -- Keith 19 Derrington, Ameresco. What happens 20 currently with the current language and 21 in the way it's typically done 22 throughout government and with the 23 industry, is when you are at that 24 decision point to go to the DES or 25 investment grade audit, it causes the 41 1 whole project to be elevated through the 2 management chain within the agency. So 3 they are getting the buy-in of the 4 senior management chain to the project 5 overall. And I think if you eliminate 6 that from the process, we are going to 7 end up with a lot of projects that 8 aren't going to get elevated high enough 9 within the chain to get the buy-in 10 that's necessary to ensure that we 11 actually end up with true task orders in 12 hand. Thank you. 13 MR. ROGER FLOOD: 14 Roger Flood from TAC. I want to 15 talk about something the gentleman from 16 Johnson Controls discussed, that of 17 smaller, slower and emerging 18 technologies. In this conference you 19 guys have talked specifically about new 20 government goals as -- and in terms of 21 renewables and that type of technology 22 that you want to have installed, and so 23 there is a very specific example of an 24 area that probably ESCOs would be 25 reluctant to spend time on, engineering, 42 1 if they thought that their detailed 2 energy analysis is going to be not 3 reimbursed if you don't proceed. So 4 those are areas that are fairly risky. 5 We are not sure they are really going to 6 make sense when it's all said and done, 7 and quite frankly, we probably would be 8 unwilling to spend a lot of money on 9 that if we think we are not going to get 10 paid for it at the end. 11 MR. DARYL BERG: 12 Let me follow-up a question to 13 you. Not committing, but assuming it 14 was able to be changed to where the 15 government would be on the hook for the 16 IG costs even if the task order doesn't 17 go forward, what other ways are there 18 out there to promote using emerging 19 technologies or renewable energy 20 technologies? What incentives are there 21 out there to get the ESCOs to pursue 22 that, and do they get the agencies to 23 want to do those type of things? That 24 would be useful for me. If there is 25 something contractually, we can have 43 1 them contract. Not to put you on the 2 spot. 3 MR. ROGER FLOOD: 4 Well, I think the tax incentives 5 that are in place are extremely good, if 6 those could be made better. The thing 7 is you have got a situation where 8 private industry can take advantage of 9 these tax credits. So us having to own 10 them and sell energy back, being able to 11 streamline that process is good. States 12 where there is not good rebates for 13 emerging renewables such as -- in 14 California we can do those projects and 15 make it pay. You start moving to other 16 parts of the country where there is good 17 opportunity for solar or wind but the 18 local utilities don't really have the 19 incentives in place? If you have got 20 installations or Federal -- you know, 21 Federal installations in those parts of 22 the country that don't -- they can't 23 take advantage of incentives from your 24 local utilities, they need a little bit 25 more consideration, perhaps, from the 44 1 standpoint of Federal tax credits or 2 those types of incentives. 3 And I can just tell you from 4 experience working in the south where 5 there is a lot of that opportunity, 6 utility rates are relatively low. The 7 tax credits alone make it extremely 8 difficult to make those projects 9 cashflow. Whereas you go to California 10 and you get tons of money from the 11 California Solar Initiative, it makes it 12 worthwhile financially. So it's kind of 13 regionalized as to what can be done to 14 make it better. 15 MR. DARYL BERG: 16 Roger, I agree about everything 17 you say. The challenge for me 18 contractually is those state incentives 19 or even government incentives are -- 20 they are not within my control. 21 MR. ROGER FLOOD: 22 Right. I understand that. 23 MR. DARYL BERG: 24 If there are those incentives or 25 rebates, the contract does allow them to 45 1 be captured in TO3 and some other areas, 2 too, but the -- essentially what you get 3 in rebates captured and used toward the 4 cost of the project but that -- 5 MR. ROGER FLOOD: 6 Well, those types of things would 7 have to be dealt with legislatively in 8 the next session or the one after that 9 just as they are identifiable and you 10 know what you can do about them. So you 11 asked, and that was my answer. 12 MR. DARYL BERG: 13 I put you on the spot, too. 14 MR. ANDREW MORTON: 15 Can I -- 16 MR. DARYL BERG: 17 Andrew. 18 MR. ANDREW MORTON: 19 I would just say, because Roger 20 talked about what I would refer to as 21 existing renewable technologies which 22 are -- you know, the decision to include 23 them or not include them is a lot of 24 times driven based on financial 25 incentives. 46 1 The deeper part of your question 2 is the emerging technology that DOE is 3 really trying to promote, and it's our 4 understanding your intent with this new 5 contract is to promote that. That being 6 said, when we as an ESCO are working 7 with a site trying to evaluate emerging 8 technologies, the risk -- because we 9 have to guarantee the savings is all on 10 the ESCO. And so contractually you may 11 want to look at some kind of clause that 12 will allow a sharing of risk 13 post-installation when the technology 14 truly is emerging. I mean, photovoltaic 15 have been around, we don't have an issue 16 guaranteeing that, but if there is some 17 new technology that's being created at a 18 lab such as NREL or Argonne that's truly 19 new, we are not going to take all that 20 risk for performance when it's never 21 been tried and true other than maybe, 22 you know, tested at a DOE site. So 23 that's something that you might want to 24 consider if you are truly trying to 25 promote what I would call emerging 47 1 technologies or in development. 2 MR. DARYL BERG: 3 Thanks. A follow-up comment, and 4 it's somewhat related to government 5 procurement process. We are talking 6 about the draft RFP and some of the 7 issues involved in that. We are going 8 to take -- we took -- take your comments 9 that you submitted through IIPS, take 10 your comments today, bring it back to 11 the team, look at them and see what we 12 can do with them. 13 Once that happens, we are going to 14 revise and develop what we call the 15 final RFP, but it's just the RFP. 16 Now, that goes through an internal 17 approval process, like I mentioned, and 18 once we post that again to IIPS, that's 19 what you will propose against. But that 20 doesn't mean that you can't stop or that 21 you can't ask questions still, that you 22 can't have comments or recommendations 23 that we can change. And the way that 24 would happen is we would amend the RFP, 25 and if it's something relatively minor, 48 1 we may not extend the offering period or 2 maybe it's a major thing and then we 3 have to, you know, push -- move the 4 offering period. So I just -- that just 5 popped into my mind, that once the final 6 RFP is issued, that doesn't mean that we 7 can't amend it if it makes sense to do 8 so. 9 MR. ANDREW MORTON: 10 Can I ask a follow-up on that, 11 then? 12 MR. DARYL BERG: 13 Yes. 14 MR. ANDREW MORTON: 15 Because the fundamental thing that 16 I saw as having this meeting in this 17 reform, which we are very supportive of, 18 but given the fact that you looked over 19 600 questions and generated a 106-page 20 document consolidated, we really 21 appreciate that, but there was probably 22 over 300 "Thank you for your comment. 23 We will consider making changes." 24 We understand you are bound by 25 certain things, but it's going to be a 49 1 lot more valuable to us if you make the 2 decision on whether it's in or out and 3 then update your RFP and post it again 4 for us to make those comments instead of 5 you issuing it and then having, you 6 know, us individually or collectively 7 make some suggestions and then you-all 8 decide in the middle of the procurement 9 at that -- when you issue it, you are 10 truly in the middle of your procurement, 11 right, that starts the clock, so to 12 speak. 13 MR. DARYL BERG: 14 We already -- the clock started on 15 the procurement a year ago so -- 16 MR. ANDREW MORTON: 17 Okay. That being said, I'm just 18 asking or suggesting there is a lot of 19 value if we know of those 2 or 300 of 20 those "Thank you for your comments. We 21 will consider making the change," what 22 way you are going so that we can offer 23 truly what I would say is constructive 24 feedback. 25 I mean, today you are asking us to 50 1 expand on what we have already commented 2 on. We truly are sincerely interested 3 in knowing whether you are going to 4 include or not include and then we would 5 offer additional comments. It's a 6 suggestion. 7 MR. DARYL BERG: 8 We will take that into 9 consideration. 10 MR. BILL JOHNSON: 11 Good afternoon. Bill Johnson with 12 Honeywell. 13 It will sound an awful lot like 14 the same story we have been talking 15 about, but I want to move you forward 16 just a bit in time about your contract 17 should you leave it the way it is. A 18 couple of thing will happen, and the 19 gentleman from TAC mentioned it probably 20 the most directly should you not change 21 the current position where there 22 wouldn't be a cost to recover or a 23 method to recover the investment cost 24 for a failure-to-go-forward project. 25 Should you make your awards -- should 51 1 the contract holders make that 2 investment and the first project doesn't 3 go forward, you will lose contractors to 4 the next project. So the pool of 5 contractors where you are looking to 6 have a viable community will fail 7 because there will be a point in time 8 where the corporations will say, "You 9 are not able to recovery your fees. You 10 are operating a business that falls in 11 the red, and that's not the intent of 12 your program." 13 So I would suggest the revisit, 14 reevaluate, so there is a couple of 15 different business models for you to 16 consider. The honorarium approach to a 17 design build business is the most 18 obvious one, where it's already 19 predetermined that a value is placed on 20 a stake in the game for the Federal 21 government. 22 The second thing is in the absence 23 of doing the hard work ahead of the 24 award, you would have to move the 25 engineering post-award in order to have 52 1 a method for recovering those fees or to 2 be ensured of it. 3 That being true, you will lower 4 the expectation of the pre-award 5 deliverable requirements, so the quality 6 of the documentation will go down. You 7 are looking for specific causes or 8 implications associated with the current 9 position. That's the first one. 10 The second one is the performance 11 associated with engineering that's not 12 done well in advance and done 13 post-award. The post-award engineering 14 becomes irrelevant to the bottom line 15 because the dollar amount is then fixed. 16 So the consequence will be the 17 performance during the out years or 18 during the performance period associated 19 with whatever measurements are 20 installed. So if what we are being 21 accountable for is performance during 22 that phase, you might see, you would 23 expect to see an erosion of that as a 24 result of the engineering not being done 25 in advance. 53 1 MR. DARYL BERG: 2 So I understand that point, Bill. 3 If the performance is degraded, though, 4 that's going to cost you more money? 5 MR. BILL JOHNSON: 6 Correct. Which will be the third 7 consequence, it will drive the risk up 8 in which case we will recover that risk 9 somehow in the cost of the project. 10 Otherwise you will be out of business, 11 which will be the first point. You will 12 eliminate the contractors. 13 MR. DARYL BERG: 14 Or do the upfront. 15 MR. BILL JOHNSON: 16 Correct. 17 MR. DARYL BERG: 18 You are going to incur the costs 19 one way or the other, is what you are 20 saying? 21 MR. BILL JOHNSON: 22 Correct, correct. So the risk -- 23 it's just purely a question of risk, 24 right? So in the absence of a 25 mitigating factor for the risk, risk 54 1 will be incurred. The cost of risk can 2 be accounted for in the value of the 3 project. 4 I'm going to take a slightly 5 difference stance on another subject, 6 and that is the value of an adaptive 7 contract. We are seeing an awful lot of 8 things that have occurred in the last 9 two years, five years in the energy 10 market whereby things like renewable 11 energy, innovative energy, incubator 12 technology that's of value to the 13 Federal government, that would be 14 desired by the Federal government 15 frequently makes it into a project but 16 doesn't make it into the award, into the 17 development but not into the award. 18 Some adaptive nature to your contract. 19 We have talked an awful lot about our 20 purchase agreement, terms and conditions 21 and the construct of that inside of a 22 project. It works, we think, inside of 23 the existing program, and I think there 24 would be value in looking at it in the 25 long-term in your revised contract 55 1 structure. 2 MR. DARYL BERG: 3 All right. Thank you. 4 MR. ROGER FLOOD: 5 Just to kind of drive a point home 6 maybe a little harder than it's been 7 said so far, I don't think anyone here 8 really has an issue with the ESCOs 9 taking some of the risk up to the point 10 of preliminary surveys and some initial 11 discussions. There is no issue with 12 that. Specifically the detailed 13 analysis cost is what we are talking 14 about here, and that point somebody 15 within the government has said, "Yes, we 16 are interested in this. Yes, we want 17 you to develop this project. Yes, we 18 want you to do the detailed energy 19 analysis and all the energy work that 20 goes with it." So we have been told at 21 that point that the government is 22 interested in doing the project and 23 interested in actively engaging us in 24 this point in the process. So that 25 really hasn't been verbalized word for 56 1 word like I just put it. So we are 2 being asked to perform a task that 3 otherwise if you went to a local 4 engineering firm and had them do that 5 engineering study, it would be at least 6 what we are going to charge if not more 7 and they wouldn't be on the hook for the 8 performance, they would give you a book 9 and it would -- at that point you would 10 have to even go further to develop plans 11 and specs to do a design bid build, 12 which is not what you are wanting to do. 13 So this is a service that has a 14 lot of value to start with, and to say 15 that you are not going to be on hook for 16 it probably isn't fair to the industry 17 and you have asked us to do it so -- 18 MR. DARYL BERG: 19 Roger, a follow-up question, and I 20 should have asked this earlier to the 21 folks. Is it desirable or what I'm -- 22 is it you-all's desire that the 23 government be on the hook for IGA costs 24 whether it goes forward or not 25 without -- should the government be on 57 1 the hook, if they say, "Well, you know, 2 we like what you did, but we just don't 3 want to do the USPC anymore. Sorry. 4 Too bad for you"? Or what happens if 5 the ESCO does the IGA, I mean, and the 6 ESCO says, "Well, we looked at the 7 numbers. It just ain't going to work, 8 Folks. I think it's in both our best 9 interest just to walk away," should the 10 government pay then? Thoughts about 11 that. 12 MR. ROGER FLOOD: 13 In the first scenario, definitely 14 on the hook. If we do the investment 15 grade audit and the numbers look good 16 and everything is as discussed, then 17 definitely you should be on the hook. 18 But something that was discussed in a 19 couple of sessions throughout the last 20 couple of days is there is preliminary 21 meetings and there is discussions that 22 happen to kind of set the boundaries and 23 establish the project that we are going 24 to be talking about developing between 25 the ESCO that's been selected and the 58 1 end user, the agency. So when you 2 discuss those boundaries and you set 3 those boundaries, those establish the 4 parameters that the ESCO needs to meet 5 when they do the investment grade audit. 6 So if you weren't in -- a lot of 7 renewables in the project that have you 8 longer payback, then you might be 9 talking about a, just in simple terms, a 10 neutral cashflow for 20 years that 11 includes these items, some list. If 12 that's met and the government decides 13 not to move forward, then the ESCO 14 should be paid. 15 Now, if you are talking about that 16 early on and the ESCO says that's not 17 possible. You can't do that list of 18 projects and expect a 20-year simple 19 payback. The government still wants to 20 do it and it turns out not to be neutral 21 cashflow or better as discussed, then, 22 again, the ESCO should be paid. If the 23 ESCO says, yeah, we can do that, we can 24 meet those parameters, and they go into 25 the investment grade audit and then they 59 1 are not able to for whatever reason, in 2 that case the ESCO hasn't met what they 3 said they could do, the government 4 probably shouldn't have to pay for that 5 audit. 6 Now, I don't know if everyone 7 would agree with that, but you set up 8 initial parameters that need to be met 9 and that's a team situation. Both sides 10 are saying, "We want this," and the 11 other side is saying, "I can do that." 12 Everyone agrees they move forward with 13 the audit. If it's successful, great. 14 If not, then the ESCO agreed to take 15 that risk. 16 MR. DARYL BERG: 17 Follow-up on that point, what I'm 18 starting to hear, that if -- if the IGA 19 costs do fall back to the -- let me try 20 to backtrack again. This contractual 21 obligation seems like it needs some 22 terms and conditions. If this happens, 23 then government, you are on the hook. 24 But if this happens, then we are not 25 going to hold you to it, that type of 60 1 thing. It has to be more than a 2 discussion. It's got to be in writing 3 somehow. 4 MR. ROGER FLOOD: 5 That's correct. We are all used 6 to doing that. Everyone in this room, 7 we had those types of forms. 8 MS. BRITTA McINTOSH: 9 Britta McIntosh. I think what 10 general understanding has always been 11 that it's been the job of the energy 12 services company to put together a 13 financially viable project. And if we 14 get to the end of the DES and we can't 15 make a project financially viable, then 16 shame on us for not getting it done. 17 But if we do, even in the situation 18 where we have now where the general 19 understanding is that if we put a 20 financially viable project on the table 21 and the customer for whatever reason 22 decides not to go forward with the 23 project and you have that opportunity to 24 recoup those costs, if we lose that 25 opportunity for the government to have a 61 1 stake in the game, as others have said, 2 I think, you know, you are going to have 3 a situation where, you know, the 4 companies in this room are here to do 5 projects, not just develop things for 6 free and then have folks at the very end 7 say, "Huh, you know what? Thanks, but 8 we will just put that on the shelf." 9 There is already a lot of putting 10 things on the shelf, you know, going on, 11 and it's painful for us to have to go 12 and recover costs in some cases. And it 13 translates into very long development 14 cycles and having to hold reserves, 15 having ultimately to make decisions on 16 where you are going to spend your 17 development dollars. We don't have 18 unlimited resources as companies to 19 decide where we are going to invest in 20 putting projects together. And I think 21 that that will be countered to the 22 bigger, more, faster, you know, and more 23 comprehensive and more innovative. 24 That's where we are going to head, in 25 the opposite direction. And in some 62 1 cases I think, Daryl, we have had this 2 conversation before, the wish also to 3 have smaller businesses involved in the 4 ESPC program, that's also, I think, 5 going to not happen or you potentially 6 set up a lot of companies to participate 7 for a very short period of time and 8 realize, "Oh, my god, I'm going to go 9 under. I can't do this. I can't lose 10 that opportunity that far after I've 11 extended myself that far down the pike." 12 I mean, I think historically you 13 have had some very large, strong 14 companies playing, you know, in this 15 arena, but if we want to open this up to 16 a lot more participation, we have to be 17 careful of that. 18 MR. DARYL BERG: 19 Thank you. 20 MR. KEITH DERRINGER: 21 Quick question. Earlier you said 22 that you would like some input or 23 information if we had legal opinions 24 that we knew of. How do you want to 25 receive that information? 63 1 MR. DARYL BERG: 2 The IIPS system doesn't let you do 3 attachments as you all probably -- 4 MR. KEITH DERRINGER: 5 Yes. 6 MR. DARYL BERG: 7 I guess if something like that, 8 since it's something I requested 9 personally, if you send it to the -- 10 it's espc@go.doe.gov. That comes to my 11 personal mailbox, but I separate out 12 kind of my other e-mail from the 13 recompetes, so I see it when it comes to 14 me. 15 MR. KEITH DERRINGTON: 16 So you said it was espc.go.doe -- 17 MR. DARYL BERG: 18 Espc@go.doe.gov. 19 But if it's questions regarding 20 the recompete, still go through IIPS. 21 MR. KEITH DERRINGTON: 22 Okay. Thank you. 23 MR. DARYL BERG: 24 So the thing here is about risk. 25 I'm sorry, but I just want to throw out, 64 1 too, that if you have questions about 2 the procurement process, if you want to 3 know where we are at or what's going on 4 next, don't hesitate to ask about that, 5 too. 6 Yes, sir. 7 MR. STANFORD ROLLINS: 8 Stanford Rollins with Providence 9 Capital Resources. In the upcoming 10 future contracting opportunities, I 11 request that the government provide 12 guidance into the contracts, ESPC 13 contracts or UESE contracts, for that 14 matter, with respect to AA lenders, 15 certified companies holding AA and small 16 disadvantaged business certifications. 17 With respect to how a proposal for 18 financial services from an AA company 19 will be evaluated and/or incentivized 20 and also how the participation of a 21 certified small business providing 22 financial services will be accounted for 23 in meeting the small business 24 contracting goals, if that could be -- 25 if guidance on those matters could be 65 1 provided so that your large ESCOs and 2 utilities, the ESCOs can at least 3 consider that. 4 MR. DARYL BERG: 5 Thank you. We will consider that. 6 MR. BOB STARLING: 7 Bob Starling with B. Starling & 8 Associates. The fact that you have 9 received, I believe, in an order of 600 10 some comments, you have got some reviews 11 you will be receiving. You have 12 received comments today. Again, where 13 do you stand on the schedule that was 14 provided in the draft RFP? 15 MR. DARYL BERG: 16 Thanks. I'm apprehensive to give 17 a schedule because every time I do we 18 bust it, we are always -- we are behind. 19 We take this back, it's going to take 20 some time, weeks as opposed to months, 21 to get all the comments incorporated 22 into the next RFP. I suspect it will 23 take maybe a couple of months in review 24 because the way it happens is the 25 reviewers look at it, then we have got 66 1 to go revise it, it goes back to them, 2 so a couple of months. The last time 3 that we went through the draft RFP was 4 probably three, four months, so two 5 months might be conservative. Once the 6 R -- the way it's currently envisioned 7 is once the RFP is issued -- and by the 8 way, the RFP will tell you where the 9 site visit is going to be and where the 10 preproposal conference is. It will give 11 you the data you are going to use to 12 propose on and instructions on how to 13 coordinate those visits. 14 So after the RFP is scheduled or 15 posted, then maybe tours a few weeks 16 after that, and that will be part of the 17 proposal offering period. I don't -- 18 and I'm open for suggestions on how long 19 that should be. Our initial thought is 20 45 to 60 days. And then the -- what we 21 do, once we get proposals, and like I 22 say, things might change. We might have 23 to extend that for some reason or what 24 have you. Once we get the proposals, 25 then we comb through them, make sure 67 1 that they are responsive to what we 2 asked for. We get it ready for the 3 individual reviewers. And what we are 4 looking at doing is having reviewers 5 review them individually, come up with 6 questions or strengths, weaknesses, 7 something like that, and then we will 8 reconvene and as a group come to 9 consensus scores on the RFP. 10 Once we score the offers, there 11 will have to be a decision made whether 12 to do what we call -- well, whether to 13 do negotiations or not. And so the way 14 that happens is if we established -- we 15 want to do negotiations with these top 16 20 people. We allow those top 20 to 17 improve their proposals. We re-evaluate 18 them and then kind of get down to a 19 final number. 20 If we do negotiations or what we 21 call discussions, that's going to add 22 three, four months onto the process. If 23 we can decide not to do discussions or 24 negotiations and award as -- with the 25 information we got in the proposals, 68 1 then obviously that's a time saver and 2 then we can go straight to, you know, 3 finalizing the award. 4 If there is a protest for whatever 5 reason, that will slow the process down, 6 and I don't know how that will affect 7 the continuity operations with the 8 existing contract. Irregardless, the 9 idea here is that we get the new 10 contracts awarded prior to the existing 11 ones closing so that we don't have a 12 slowdown of project development. 13 If for some reason we can't do 14 that, that obviously is a problem for 15 everyone. I could tell you that it's 16 DOE's policy to recompete projects every 17 five years, and we have extended the 18 existing IDIQ contracts a couple of 19 times, the ordering period a couple of 20 times. It has not been an easy process 21 to do. Internally it's taken months to 22 get the various approvals to go get -- 23 to get exceptions to DOE policy. So 24 obviously I'm not saying if you have a 25 legitimate -- if you have a legitimate 69 1 harp, it's your prerogative to protest, 2 but it's in everyone's best interest to 3 keep this procurement moving as quickly 4 as possible, to do the right thing so 5 that we don't have protests, so that we 6 have continuity of project development, 7 so that's kind of the process, the 8 general timeline. I hope that answers 9 your question. 10 MR. BOB STARLING: 11 Thank you for that detailed 12 information. Follow up with a question: 13 In the draft RFP it does make some 14 references to the number of contract 15 awards expected. Is there a finite 16 number of contract awards that DOE is 17 currently looking at? 18 MR. DARYL BERG: 19 No. That's the other thing that 20 government procurement says, you have to 21 have a number. The way -- the general 22 way of how you get the number is you 23 take in consideration what you have to 24 guarantee as a minimum. So, you know, 25 in essence, DOE has an obligation to pay 70 1 the minimum for each contract. So if 2 you had 10 contracts, the government has 3 to come up with less money than if you 4 had 50 contracts. 5 The other part of the 6 consideration is contract 7 administration. The other part is 8 having a sufficient number of 9 contractors out there that could do the 10 work to meet the energy production 11 goals, also to have sufficient 12 competition out there for agencies to 13 choose from. So we won't know exactly 14 until we see what we have got, is the 15 short of it. 16 So those are the considerations 17 when we ultimately award, and the draft 18 RFP gives us flexibility. I think we 19 put 10 or 10 to 12 or something in 20 there, and we have flexibility more or 21 less depending on what you want to do. 22 MR. ED ANDERSON: 23 Ed Anderson, FPL Energy Services. 24 I'd like a little more clarification on 25 that. If you have a number in the final 71 1 RFP, then you cannot go above that but 2 you can go below that? 3 MR. DARYL BERG: 4 The RFP states we tend to award 5 approximately 10 but we reserve the 6 right to do more or less depending on -- 7 MR. ED ANDERSON: 8 And that's the language you expect 9 to have in there? Because I don't 10 believe that was in the draft. 11 MS. BETH SHEARER: 12 It was. 13 MR. ED ANDERSON: 14 It was? 15 MS. BETH SHEARER: 16 Yes. 17 Beth Shearer. This is sort of a 18 clarification question for me. You 19 mentioned that maybe 10 billion was the 20 right number for the dollar maximum 21 amount? 22 MR. KEITH DERRINGTON: 23 Per contract. 24 MS. BETH SHEARER: 25 Per contract. So that would be 72 1 for the five-year original term and then 2 the two three-year extras for a total of 3 11 years? 4 MR. DARYL BERG: 5 That's generally how you do it. 6 MS. SHEAR: 7 So 10 billion per contractor for 8 11 years. 9 MR. DARYL BERG: 10 You could do it both ways. You 11 could say whatever the amount is is for 12 the initial base period of five years, 13 or we can up front say this is for base 14 and all option years, as well, which is 15 preferable to me, at least, because if 16 you don't establish that amount for the 17 option years, you had to recompete those 18 option years and give -- and go through 19 a process to get additional ceilings. 20 It's easier for everyone if we just 21 establish a ceiling for the entire 22 potential length of the contract. 23 MS. BETH SHEARER: 24 Then -- 25 MR. DARYL BERG: 73 1 Which in that case if we -- for 2 some reason we only do it for five 3 years, that ceiling would still be five 4 years. 5 MS. BETH SHEARER: 6 In that case, if it's for the 7 total 11 years, 1 billion per contractor 8 really is inadequate because, I mean, 9 I'm just looking at what DOE is 10 proposing and you are going to hit that 11 within a year or two so -- 12 MR. DARYL BERG: 13 What do you recommend, Beth? 14 MS. BETH SHEARER: 15 That's fine. The $10 billion per 16 contractor sounds about right. 17 MR. DARYL BERG: 18 So if we had 10, do you anticipate 19 $100 billion worth of work out there 20 for -- 21 MS. BETH SHEARER: 22 I see. So the number of 23 contractors -- see, on the other hand, I 24 think you should have a larger number of 25 contractors, if you can, the flexibility 74 1 to have -- 2 MR. DARYL BERG: 3 Or if we had 50 and there were 10, 4 $5 trillion worth of work out there or 5 $500 billion? 6 MS. BETH SHEARER: 7 Yeah. You are probably better off 8 setting it a little high initially when 9 you don't know the number of 10 contractors. It's a lot easier to 11 keep -- it's a lot easier to have it 12 higher than to have to try to bump the 13 ceiling up, depending on the number of 14 contractors. 15 MR. ED ANDERSON: 16 Just a quick comment, if I might. 17 Just a point of clarification there. 18 Your question was do we expect X number 19 of contracts out there? As I understand 20 it, it's not -- you are not asking with 21 these dollar limits how much work is out 22 there. The way it's currently written 23 is what would the government pay over 24 the total period of time. They are two 25 different and distinct issues. 75 1 MR. KEITH DERRINGER: 2 That's correct, and I think just 3 to elaborate a little further, it's hard 4 to predict what the universe is of 5 projects can be done because as you know 6 and we know, over the last 10 years the 7 landscape of where we have been -- of 8 the world we are trying to do business 9 in changes. We have legislative changes 10 that come out from nowhere that will 11 change what the goals and requirements 12 are, and it's just hard to predict how 13 that's going to go in the future. And I 14 think there is unanimity with anybody 15 who either has a contract now or who 16 doesn't have one and wants to get one in 17 the future, is we don't want to see 18 anyone make decisions that are going to 19 paint you into corners that make it 20 difficult for you later to deal with 21 whatever changes come from Congress as 22 far as goals or mandates. Because it is 23 very difficult to go through this 24 process, you are living it, and we would 25 like to see you come with something that 76 1 suits the government's needs not only 2 today but what they could be down the 3 road. 4 MR. DARYL BERG: 5 Thanks. That's certainly -- 6 that's everyone's desire and so 7 that's -- we appreciate your feedback to 8 give us some ideas. It's a hard -- 9 MR. KEITH DERRINGER: 10 It's nebulous. 11 MR. DARYL BERG: 12 I still don't know exactly what 13 the right number is. You could have -- 14 why not have it -- the maximum ceiling 15 20 trillion? What harm does it do, 16 right? Well, it's the regulations -- 17 MR. KEITH DERRINGER: 18 Yeah. I hear what you are saying. 19 MR. DARYL BERG: 20 You have to have some rationale 21 for the number you picked based upon the 22 amount of work available, ESCOs. There 23 has to be rationale for the numbers. So 24 that is what we are trying to figure 25 out. 77 1 MR. KEITH DERRINGER: 2 Right. 3 MR. CHRIS HESSLER: 4 Chris Hessler with AJW, and we 5 represent Noresco on a number of issues 6 related to this subject. 7 I'd like -- you had asked, Daryl, 8 that we talk to you about whys and one 9 of the whys I think that is necessary to 10 address is why you got 600 comments. 11 And in particular, why you got 600 12 comments in contrast to general quiet 13 from the industry -- excuse me, from the 14 industry in the period since last year 15 when you announced that you wanted to 16 use the IIPS system and that if we had 17 comments on the contract, that was the 18 thing to do. 19 And let me try and put it in this 20 context. My view is that the -- one of 21 the challenges the ESPC has constantly 22 had is that it is not traditional 23 acquisition, and the contract that we 24 were working with -- are working with 25 has been discussed, refined and modified 78 1 over years of hard work and it has 2 reached a point where there are many 3 folks who are comfortable with it and 4 knowledgeable with it. But one of the 5 challenges we constantly run into is 6 that there is a lack of institutional 7 knowledge on the government side. 8 Government folks change jobs, they 9 change positions. You are not always 10 dealing with the same lawyer. You are 11 not always dealing with the same program 12 officers. And appropriately government 13 employees are going to be very risk 14 adverse about signing the government up 15 to something if they are not absolutely 16 sure that it's appropriate and proper 17 and that the government is getting what 18 it's supposed to get. So people who 19 move around in the government and are 20 accustomed to traditional acquisition 21 are not necessarily going to be 22 accustomed to ESPCs and so it slows the 23 process down. 24 With this contract, a number of 25 things have been changed and on the 79 1 industry side we are not certain what 2 the objectives are. We have some 3 speculation. There has been some 4 discussion. It certainly appears that 5 there are hard work put into it from 6 your side, from the government side, and 7 I'm sure that there are logical 8 explanations for all of the changes. 9 But the generic fear reaction is that 10 there will be a whole lot of new 11 uncertainty injected into the process 12 even with those people who have 13 institutional knowledge because there 14 will be a discussion about what does 15 this new change mean, what does this 16 particular different phrase mean, and 17 how do we interpret going forward? So 18 it compounds the problem of ESPC not 19 being a traditional acquisition. 20 This comes at the same time as 21 significant direction, policy direction 22 from the government in terms of the team 23 initiative that we are discussing, in 24 terms of the Executive Order, in terms 25 of legislation, that that has been 80 1 signed into law and legislation that is 2 likely to be signed into law, that we 3 should be using -- the Federal 4 government should be engaged 5 significantly in more aggressive energy 6 efficiency activities. 7 And so the volume of comment, and 8 I think the level of enthusiasm behind 9 the comment speaks directly to a fear 10 based in history, based in the 11 experience of all of the ESCOs that the 12 uncertainties of new language compound 13 all of the other difficulties and 14 will -- will, even if they can all be 15 worked out, even if all the changes in 16 language are -- eventually come to be 17 under by the ESPC experts on both sides 18 and worked with, and even if the worst 19 fears about risk shifting leading to 20 higher costs and smaller projects and 21 longer time lines weren't to be true, at 22 least initially, the very fact that 23 changes are being made will lead to 24 those outcomes because of the 25 uncertainties, because of the 81 1 appropriate caution of government 2 employees taking their responsibilities 3 on behalf of the government seriously. 4 So I would recommend that changes to the 5 contract should be scrutinized from the 6 perspective of having a very high 7 threshold, that if there is not an 8 extraordinarily compelling reason that 9 suggests the government will get a 10 better result from a policy perspective, 11 from an outcome of greater energy 12 efficiency, you should be very cautious 13 about changing the contract. 14 MR. DARYL BERG: 15 Thank you. 16 I don't know if I mentioned this 17 before as a side note, we have the room 18 until 5:00 or the stenographer up here 19 is available until 5:00, so we can go up 20 to that point. We are not able to go 21 past, but we still have plenty of time 22 so -- 23 MR. ROGER FLOOD: 24 In response to the question about 25 your timeline, you mentioned something 82 1 in the middle of your process that kind 2 of peaked my interest. You get initial 3 responses, you reviewed them. Suppose 4 you get down to a list of 20 that you 5 want to negotiate further with or look 6 at closer or whatever and possibly ask 7 them to do a further or more detailed 8 look. I think that's what you're -- I 9 couldn't quite hear in the back, but it 10 sounded like you were looking for maybe 11 those 20 to do a more detailed proposal 12 or offering and then you would negotiate 13 with them. I wonder what the point 14 of -- because that sounds like a really 15 easy decision for the government to have 16 in a closed room, say, hey, why don't we 17 get these 20 to look closer and we spend 18 an extra 60 or 90 days of time, what 19 would you expect to get from that that 20 you can't get by just talking to them? 21 MR. DARYL BERG: 22 That's a good question. The 23 answer is a little bit less easy to come 24 by. What makes us decide to do 25 discussions or negotiations and what 83 1 does that mean exactly? Well, it simply 2 means to give the offerer the 3 opportunity to improve their proposal. 4 It doesn't necessarily mean that you 5 have got to go back and do -- relook at 6 the numbers or better detail. It might 7 be that we don't really understand what 8 you were trying to do here, go back and 9 make it more clear for us and we will 10 reevaluate you after that. Or, I don't 11 know, maybe there were -- I can't come 12 up with specifics, but it's to improve, 13 not necessarily to redo or to go back 14 and recrunch numbers. It's just -- I 15 don't want to say the word clarify 16 because then government clarifications 17 are something different than 18 discussions, but, yeah, to make it more 19 clear to us, understandable, to 20 strengthen your proposal with the 21 information that you already have or 22 whatever so -- 23 MR. ROGER FLOOD: 24 One of the things that's always 25 fun from a competitive standpoint on our 84 1 side is trying to figure out how far we 2 can really go in this type of response. 3 Some states have procurement processes 4 where you do preliminary surveys as a 5 first stage to either be short listed or 6 get selected, then do a detailed audit. 7 And so one of the things in a 8 competitive process we are always trying 9 to figure out is, okay, as an ESCO do we 10 really want to do a more detailed 11 response than the next guy than they are 12 really asking for in the proposal 13 solicitation? Do we do something a 14 little more detailed to show our extra 15 interest, to kind of elevate the 16 interest of the client? So when you -- 17 and that always opens the door, when 18 there is a second phase of further 19 proposal, clarification or whatever term 20 we want to use here, the gamesmanship 21 kind of gets started a little bit, you 22 are able to ramp up and maybe go back 23 and recrunch numbers, do something a 24 little bit more detailed than perhaps 25 you did in the first phase. I don't 85 1 know. I don't know if you intend to 2 open that door or -- that's super easy 3 for a client to do, to ask for, and then 4 it really -- I mean, at that point we 5 are all trying to figure out now what -- 6 okay. What are they really looking at? 7 What can I do at this point to get 8 someone's interest? So -- 9 MR. DARYL BERG: 10 I'm not sure how to respond to it 11 without specifics, but that's what 12 happens, is about all I can say. You 13 understand that the decision on whether 14 to do discussions or not will be based 15 upon whether or what we have is 16 sufficient to award with, and there is a 17 lot of intangible things that go into 18 that. 19 MR. ROGER FLOOD: 20 I guess I draw a distinction 21 between discussions and redoing 22 proposals. 23 MR. DARYL BERG: 24 It's essentially the same thing. 25 MR. ROGER FLOOD: 86 1 Okay. 2 MR. DARYL BERG: 3 Discussions are us telling you we 4 think you have some deficiency here. We 5 would like you to go back and improve 6 these certain areas. 7 MR. ROGER FLOOD: 8 Okay. 9 MR. DARYL BERG: 10 And you go back and try to fix 11 that and try to game what we are looking 12 for, how we are going to do this, 13 resubmit it to us and we reevaluate it, 14 score it, and then you either are in or 15 you are out at that point. 16 MR. ROGER FLOOD: 17 What the goal -- I mean, the goal 18 you are trying to get to is how is it 19 going to be to do business with us in 20 the future? That's really what you are 21 trying to get to. 22 MR. DARYL BERG: 23 Yeah. 24 MR. ROGER FLOOD: 25 Okay. 87 1 MR. DARYL BERG: 2 Anything else? 3 MR. ANDREW MORTON: 4 Daryl, I was just putting a little 5 bit of pen to paper about the proposed 6 time line and based on when you envision 7 the RFP to come out. I'm guessing best 8 case December time frame. If that's the 9 case, you might want to make sure that 10 you have at least a 60-day turnaround if 11 not 75 days. 12 MR. DARYL BERG: 13 Because of the holiday. 14 MR. ANDREW MORTON: 15 Yes, because of the holiday. So 16 it's just a comment. If it ends up 17 hitting right end of December, it's 18 going to impact not necessarily just on 19 our side but your side and the site we 20 have to go, et cetera. 21 MR. DARYL BERG: 22 Absolutely. 23 MS. BETH SHEARER: 24 Just another clarification. The 25 current contracts were extended to March 88 1 of 2008? 2 MR. DARYL BERG: 3 Yes. March 31st, 2008. 4 MS. BETH SHEARER: 5 And it's hard to get extensions. 6 MR. DARYL BERG: 7 Yes, ma'am. 8 MR. CHRIS HESSLER: 9 On of the -- Chris Hessler again. 10 One of the issues you identified in the 11 early list of themes was the on ramp 12 question, and it would be worth 13 discussing that a little bit, certainly, 14 you know, in a larger policy context. 15 The -- again, the primary, I think, 16 concern from the perspective of many of 17 the ESCOs is that the contract, the 18 master contract itself is something that 19 doesn't guarantee work. It is the 20 competition subsequent to being on, the 21 contract that is where the work is 22 obtained. 23 The process of the competition 24 that all of the existing contract 25 holders went through and is about to be 89 1 opened up again, is to identify for the 2 government who is capable of doing this 3 work. The existing contract holders can 4 be kicked off the contract and I am 5 told, although I haven't investigated 6 it, I am told that that has happened, 7 the government has, in fact, kicked 8 folks or removed folks from the contract 9 for a cause. And so the impulse of 10 suggesting that an on ramp should be 11 used is that the government, if it's not 12 satisfied with the existing contract 13 holder, has a means to remove them. If 14 it's not removing them, that is de facto 15 evidence they are satisfied. The policy 16 objective expressed for the recompete 17 primarily appears to be expanding the 18 number of contractors. And 19 simultaneously the government, again, 20 has in many different ways expressed a 21 policy objective of being far more 22 aggressive than it has been on energy 23 efficiency work in the very near future. 24 So the question then comes, what 25 happens to the existing contract holders 90 1 from a resource perspective as they 2 engage in this process? This is a long 3 process. You just went through a time 4 line. For the contract holder, being on 5 the contract is going to be the most 6 important business objective in the 7 coming months. Anything that distracts 8 from ensuring that they have an 9 opportunity to continue to be on this 10 contract will become secondary to the 11 process of participating in the 12 recompete fully and with all the 13 resources they can bring to bear. And 14 that means that the best and brightest 15 individuals who are the ones that do the 16 work, they are the ones who understand 17 the projects, they are necessarily the 18 ones that have to be involved in the 19 recompete process because they are the 20 ones who will show what the company is 21 capable of doing. So any executive will 22 assign his best and brightest, her best 23 and brightest to the process of 24 responding to government's RFP. By 25 default that means that those folks are 91 1 going to have at least diminished time, 2 if not no time, to respond to this new 3 initiative, the team initiative, or to 4 the general thrust of doing more energy 5 efficiency work for the government for 6 the period of months when they are 7 engaged in working on the recompete. 8 So from a government perspective, 9 it will get a diminished value from the 10 existing contract holders for the term 11 of -- the duration of the recompete. 12 Additionally, if it is the notion 13 that the IDIQs need to be recompeted 14 periodically, that means you will 15 periodically have the same disruption in 16 the government's ability to do this 17 work. And, again, if you create the 18 uncertainty about whether existing 19 contract holders will continue, not only 20 will they throw all their resources into 21 ensuring they will continue, you also 22 create to some degree uncertainty about 23 what the longevity of these suppliers 24 engaging in this work. The notion here 25 of the ESPC is to have long-term 92 1 relationships. Companies have resources 2 to stand behind their guarantees which 3 last considerably longer than five 4 years. It strikes me as less than 5 logical and certainly less than optimal 6 from the government's point of view to 7 distract every five years from the 8 business of doing that work, is to have 9 a process that is essentially making 10 people prove what has already been 11 proved. 12 So the notion of the on ramp is to 13 enable the government to simultaneously 14 maximize its opportunity with the 15 existing contract holders, not robbing 16 the government of any opportunity to 17 protect itself from deficiencies if 18 those contractors prove deficient and 19 simultaneously obtaining the policy 20 objective of expanding the number of 21 contractors that are available to do 22 business with the government. 23 So from a policy perspective, the 24 whole notion of the on ramp is to enable 25 the government to achieve both of its 93 1 objectives, more energy efficiency and 2 more contractors to do even more in the 3 future, without making any short-term 4 disruption and establishing a new 5 approach to allowing contractors to come 6 on in the future in a way that is far 7 less disruptive of this program overall. 8 To the extent that you can, I 9 would certainly like to know what sort 10 of reaction the government has to the 11 proposal that's already been made 12 through the IIPS system. 13 MR. DARYL BERG: 14 Thanks, Chris. 15 That's a lot to give responses to. 16 I can tell you that the idea of on ramps 17 are being considered out in the field 18 and at the headquarters, so your point 19 is well articulated and taken and we are 20 looking into that. 21 Just extemporaneously I have some 22 issues to work out. As you noted, it is 23 not only the DOE's policy to 24 periodically recompete IDIQs, it's the 25 government's policy. We are not the 94 1 only ones. The Army is doing it. The 2 Air Force is looking at doing it. Other 3 important IDIQs throughout the 4 government for defense, you name it, are 5 recompeted periodically. That's just -- 6 that's the government norm. 7 ESPCs are important, no doubt 8 about it, and I think most people would 9 agree with you there is a balance 10 between putting effort into the 11 recompete and toward project development 12 and ensuring project success, there is 13 no question about that. It's a resource 14 drain. We acknowledge that. It's just 15 part of existing, if not law, I might 16 step -- I don't know if it's law but 17 it's in the regs as the norm. 18 The idea of keeping the existing 19 ESCOs with their current contract and 20 just adding additional ones, that one 21 I'd have to work out because contracts 22 that have been around for 10 years have 23 certain terms and conditions that were 24 in effect 8, 10 years ago. Adding new 25 ones, you can't have the same terms and 95 1 conditions, it's -- because laws change, 2 regs change. 3 The other part of it is from a 4 contract administration and from a -- 5 say a program standpoint, it becomes 6 difficult to manage two types of 7 contracts. For instance, the existing 8 contracts are regional or text specific. 9 It would be without -- it would be 10 outside the scope of that contract to 11 say, now, you used to only be in the 12 western region but now you are good for 13 the entire country. You can't do that 14 in government contracting. That's 15 called a cardinal change, out of scope 16 change. You would have to recompete 17 that part of it, post it, so on and so 18 such. 19 So the new ones, if they did have 20 the ability to go national or 21 international, we can't -- we can't have 22 a level playing field. So what I'm 23 saying is, your on ramp people, if we 24 are going to allow to go international, 25 would have an advantage from that aspect 96 1 over your existing ones that only are in 2 regional because we couldn't change it. 3 So it becomes difficult administratively 4 and programatically to have contracts 5 with different processes, different 6 restrictions in terms of -- so just, 7 that's one of the things that would have 8 to be overcome, and I don't know exactly 9 how to do that. 10 The new ones, you could have some 11 substantially look like the existing 12 ones but there is going to be various 13 important yet subtle differences that 14 would make the playing field uneven. 15 So those are things that would 16 have to be addressed if we do -- if we 17 can -- if we choose to and if we can do 18 the on ramp. 19 MR. CHRIS HESSLER: 20 That was extremely helpful and I 21 appreciate the response. The notion 22 that this is -- that allowing someone 23 who has one regional to be in a 24 worldwide scope is a cardinal change is 25 an interpretation I had not heard, and 97 1 so what I would like to do is submit -- 2 I'm not sure what the process is now for 3 submitting additional information, but 4 the material that's been submitted so 5 far on this came from a previous counsel 6 for DOE who has procurement expertise 7 and I'd certainly like their thoughts on 8 that and share those with you. Can I do 9 that on the IIPS? 10 MR. DARYL BERG: 11 Right, through IIPS, again. And 12 let me -- does everyone know what I mean 13 by cardinal change or out-of-scope 14 change? Maybe I'll take just 20 seconds 15 to -- what it means in general is had we 16 from the beginning opened this up to -- 17 without any geographic boundaries. So 18 you could do projects internationally. 19 Had we done that in the beginning, would 20 that have changed the results? Would 21 there be different ESCOs now had we 22 allowed internationally? So -- would 23 ConEdison be here if we opened up to the 24 world? I don't know. Would Noresco be? 25 I don't know. If you don't know the 98 1 answer, then it's a cardinal change. Or 2 if you do know that it would have made a 3 difference, it's a cardinal change to 4 the existing scope of the contract, so I 5 don't know. 6 MR. CHRIS HESSLER: 7 Not to challenge that, I think I 8 understand exactly what you are talking 9 about, but when you make such a change 10 and are simultaneously offering an open 11 opportunity for anyone who is not 12 currently a contract holder to become 13 one, does that issue have the same 14 weight? 15 MR. DARYL BERG: 16 I understand -- to give this same 17 opportunity to the newcomer, doesn't 18 have the same weight, I'm not sure what 19 that means. The way cardinal changes 20 are allowed in the government is your 21 existing contract, say, has a regional 22 restriction. And now the government 23 says it's in the best interest of 24 this -- of the government to allow this 25 individual to have work in the whole 99 1 nation, not just be bound by the region. 2 We have to go through the IIPS process 3 again and say, hey, we intend to make a 4 cardinal change to this contract. 5 Anyone who wants to can submit a 6 competing offer to also compete on this 7 basis since you didn't have the chance 8 the first time to submit a proposal for 9 the whole nation as opposed to just the 10 region, and you go back and evaluate 11 competing proposals, you may or may not 12 end up getting that cardinal change 13 approved. It's a difficult -- 14 MR. CHRIS HESSLER: 15 It appears that the threshold 16 question is, is there a material 17 difference in the competence of an ESCO 18 who is performing energy efficiency work 19 in a single region that would suggest 20 that they are not capable of performing 21 it worldwide? That, to me, seems to be 22 the pivotal question in whether this is 23 cardinal or not. Again, let me -- I 24 will offer to submit something -- 25 MR. DARYL BERG: 100 1 Us not knowing that probably means 2 that it is because if we don't know 3 whether it would have made a difference 4 back then, then we need to find out now. 5 MR. CHRIS HESSLER: 6 But in the context of offering an 7 open opportunity for anyone to join the 8 contract, you are not excluding anyone 9 from a government opportunity. 10 MR. DARYL BERG: 11 But I'm saying you can't -- we 12 can't -- those new people won't have the 13 same contract as you. 14 MR. CHRIS HESSLER: 15 No, no. Well, the theory would 16 be, as in the comment, the theory would 17 be that existing contract holders then 18 are put on a modified contract. The 19 contract itself has been modified and 20 many times in the past. So all existing 21 contract holders would be put on the 22 exact same contract as anyone who goes 23 through the recompete process. It would 24 be one contract. 25 MR. DARYL BERG: 101 1 But then you didn't get a chance 2 to compete on the new contract whereas 3 other new people had to compete with 4 this apple whereas you have an orange. 5 MR. CHRIS HESSLER: 6 And the issue there is it is the 7 government's position that it is 8 materially different to have competence 9 in one region versus competence 10 worldwide. 11 So I'm not -- it appears to me it 12 comes down to that question. If it's 13 materially different, that you -- if you 14 won't know how to do energy efficiency 15 in the southwest, that doesn't mean you 16 know how to do it in the northeast. 17 Then if that's the government's 18 position, that underscores cardinality. 19 MR. DARYL BERG: 20 The example comes down to 21 regionalized or technology specific, but 22 there are other terms and conditions 23 that are different in the existing that 24 are in the future, so it's more than 25 just -- 102 1 MR. CHRIS HESSLER: 2 Again, the precedent is that the 3 contract has been modified so the point 4 of view that I'm expressing is that this 5 modification should not be viewed in any 6 different light than previous 7 modifications. Therefore, existing 8 contract holders should be enabled to be 9 signed onto a modified new contract that 10 is identical to the contract that the 11 folks who go through the recompete are 12 signed onto but there would be one 13 contract. 14 MR. DARYL BERG: 15 Without having to compete? 16 MR. CHRIS HESSLER: 17 Absolutely. 18 MR. DARYL BERG: 19 And the other part is you wouldn't 20 believe that changing it so that it 21 looks like the new contract would be a 22 cardinal change, is your position? 23 MR. CHRIS HESSLER: 24 Absolutely, but, again, I'll come 25 back to you with specific comments on 103 1 cardinality. 2 With regard to the -- your comment 3 about the IDIQ being commonly recompeted 4 every five years, I'd have this comment. 5 The value of precedence and the 6 importance of precedence in the 7 government and observing it is extremely 8 important and needs to be respected, but 9 precedence cannot be allowed to handcuff 10 the government from making rationale 11 policy decisions. In other words, 12 because we have done it before in 13 similar circumstances does not mean that 14 it must always be done the same way. 15 The government has an obligation to 16 examine its decisions from the 17 perspective of the policy outcome of the 18 specific decision. 19 Again, ESPC is not traditional 20 acquisition. It has many features that 21 are unique. And so I think that it is 22 important to consider that simply 23 holding the ESPC to a convention of 24 recompeting IDIQs when those other IDIQs 25 are not necessarily the same sort of 104 1 process and do not create the same type 2 of relationship for the government with 3 the contractor, it's important to take 4 up the question specifically of whether 5 that precedent should be held here and 6 whether it has merit here simply because 7 it's been used elsewhere. 8 MR. DARYL BERG: 9 Okay. Thanks, Chris. I might 10 have steered us down the wrong track a 11 little bit on saying that it's common 12 practice or precedence to recompete 13 contracts every five years or -- there 14 is -- the regulation says multiple award 15 contracts shall be awarded every five 16 years unless some statutory exception 17 applies. There is other places where 18 there is a different number than five 19 years. There is a debate on whether in 20 the 42USC8287, whether the 25-year 21 contract limitation on ESPCs means the 22 IDIQ and/or the delivery orders or task 23 orders themselves. And so, you know, 24 all that was thought of, the advantages 25 and disadvantages of doing a recompete 105 1 and getting new blood in there and 2 having an updated contract that in 3 theory we want to improve upon, all of 4 those things are programatic, things 5 that Daryl out in the field gets told by 6 headquarters, "You are going to 7 recompete. Get it done." So someone 8 else other than Daryl has made -- has 9 tried to balance all that and weigh it. 10 MR. CHRIS HESSLER: 11 I just want to clarify so that my 12 comment is not misunderstood. I don't 13 in any way mean to suggest that the 14 government has interest in prohibiting a 15 recompete that enables its objective of 16 having more contract holders. That is 17 not the basis of the assertion of the on 18 ramp. We think that these are mutually 19 compatible outcomes with you can both 20 get new blood, to use your phrase, and, 21 excuse me, substantially advance the 22 objectives of the team initiative and 23 the Executive Order the President signed 24 as well as the supporting legislation. 25 MR. DARYL BERG: 106 1 Thanks. This has been very 2 helpful for me. 3 Anyone else? Andrew? 4 MR. ANDREW MORTON: 5 We are drained. 6 MR. DARYL BERG: 7 I'm about there myself. But I 8 have to tell you that having this has 9 given me some ideas to try to -- as we 10 are talking, I'm thinking on how this 11 would work so this has been good for me 12 and I appreciate everyone. 13 Yes, sir. 14 MR. KEITH DERRINGER: 15 Just one comment along those 16 lines. I think one thing that's been 17 very difficult for us outside the 18 government has been the IIPS process. 19 Most of us have not had a lot of 20 experience with IIPS. In the past, I 21 know I have not, and we have had a sense 22 of frustration that, you know, we are 23 sliding questions under, you know, a 24 closed door and we have no idea 25 whether -- you know, what happens to 107 1 them, which is kind of disconcerting. 2 You know, you don't know what happens to 3 the questions. 4 MR. DARYL BERG: 5 Or even if we got them. 6 MR. KEITH DERRINGER: 7 And also it's been a situation 8 where we think that these are kind of 9 complex contracts, trying to do some 10 pretty complex solutions. It's not like 11 you are ordering commodities off a 12 schedule or something. I think that 13 this has been helpful for us as an 14 industry and I hope it has been for you 15 to be able to speak about some of these 16 things and hopefully get a little 17 communication going so maybe you have a 18 little more perspective about where we 19 are coming from and I think we've gained 20 more perspective about where you are 21 coming from. I think it has been very 22 beneficial. 23 MR. ANDREW MORTON: 24 Just a quick follow-up, Daryl. 25 Since you came to us and said we need 108 1 some clarification and that's part of 2 the purpose of today's, I sure didn't 3 know that you had any questions about 4 our questions. So that means that if 5 you have any more questions, is it 6 possible for you just to post them as a 7 special notice on IIPS so that, you 8 know, we will get you the references on 9 the NOITA commitments, but if you had 10 additional, we sure wouldn't want to 11 miss out on the opportunity to continue 12 to contribute if you had -- let's say 13 you came up with five additional 14 questions next week or the week after. 15 If you post those and allow the industry 16 and, you know, existing and future 17 contract holders to answer, I mean, we 18 would welcome that. 19 MR. DARYL BERG: 20 Absolutely. Thanks, Andrew. 21 That's a good point. Anyone else? 22 Going once, twice. 23 All right. Again, thanks, 24 everybody, for showing up and I 25 appreciate your comments. They have 109 1 been helpful to me. I am already 2 thinking about different strategies in 3 my mind to make a better product. So I 4 hope you guys like the results that we 5 have, that it's something we can all 6 agree to and work with. Thank you. 7 AUDIENCE MEMBERS: 8 Thank you. 9 (Whereupon the meeting was 10 concluded.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 110 1 REPORTER'S CERTIFICATE 2 3 4 5 6 I, Terry L. Owens, CCR, RPR, 7 Certified Court Reporter in and for the State 8 of Louisiana, do hereby certify that the above 9 meeting was reported by me in shorthand and 10 transcribed under my personal direction and 11 supervision, and is a true and correct 12 transcript, to the best of my ability and 13 understanding; 14 That I am not of counsel, not related 15 to counsel or parties hereto, and not in any 16 way interested in the outcome of this matter. 17 18 19 20 21 Terry L. Owens, CCR, RPR 22 Certified Court Reporter State of Louisiana 23 24 25