Performance contracting (2024)

The term 'performance' can have a number of different meanings in construction and in turn different meanings when used contractually. A full explanation of the different applications of the term can be found in the article: Performance in the construction industry.

Performance contracting in this article specifically discusses the performance requirements of completed buildings, as they might referenced in the terms of a contract, employers requirements or as a procurement mechanism. The most common form of performance contracts are energy performance contracts, however there are an increasing number of key performance indicators (KPI's) considered important and measurable elements of performance, and so performance contracting may refer to a broader range of measures assessed after a buildings occupation.

There are a number of different methods to predict, estimate and evaluate the potential energy performance of a building such as the Standard Assessment Procedure (SAP) or Energy Performance Certificates (EPCs), however in-use energy performance can give a more realistic measurement. Energy performance or more specifically energy performance savings can also be used as a creative financing mechanism where the capital costs of the efficiency improvements are in effect funded by the predicted energy cost savings over the longer period as a pay back method.

[edit] Pre-occupation energy rating

Today most buildings have to make an assessment of the amount of energy they will use, or their energy rating. In the UK the main mechanism for this is the Standard Assessment Procedure (SAP) which uses variables including Target Fabric Energy Efficiency (TFEE) and the Dwelling Fabric Energy Efficiency (DFEE) to calculate a likely energy rating for a new dwelling. This energy rating is then represented in the buildings Energy Performance Certificate or EPC (not to be confused with Energy Performance Contract also shortened to EPC). In most cases a certain level of performance will be stipulated by the buildings regulations, or by planners or the client and as such will form part of the legal obligations, although this is an implied part of the contract or employers requirement related to energy performance that sits in the contract it is not necessarily normally considered as Energy Performance Contracting.

[edit] In-use or display energy certificate rating

A Display Energy Certificate (DEC) unlike an SAP or EPC is based on an overall in-use assessment of a buildings energy use and is therefore a more realistic assessment of performance. In general lessons from post occupancy evaluations, building performance evaluation and soft-landings indicate that post completion, there is a two year period during which the energy use of a building settles. One performance contract mechanism can therefore be to require a certain level of energy performance to be achieved 1 or 2 years after completion, assessed via the Display Energy Certificate. This approach can be used for existing buildings assessing a level of improvement, but unlike other approaches it can also be used for new buildings assessing for a defined level of performance A-E. An approach similar to this, for example was written into the employers requirements by Bathnes District council prior to and for the construction of their new council offices located in Keynsham in 2016.

[edit] Guaranteed savings

Guaranteed-savings contracts are the most common type performance contract. Here, the client finances the design and installation of the improved efficiency measures, and funds are borrowed from a third party, or in some cases via lease agreements. An Energy Savings Company (ESCo) then guarantees that the cost savings achieved through the measures implemented will at least meet the costs of the loan or lease payments. Although the client assumes some risk in terms of the initial capital cost, loan or lease agreements, the ESCo agrees to pay the difference if the measures do not achieve the agreed cost savings to meat the repayments.

[edit]

Shared savings contracts are very similar to the above guaranteed savings contracts, however the ESCo not the client, funds the entire project, including initial capital costs, either themselves or through a loan. The risk is therefore far less on the client, which as a result means most of the financial savings ESCo itself. These types of arrangements are often used in the public sector where levels of borrowing for initial capital costs are not possible such as public buildings, hospitals or state funded schools.

[edit] Mixed savings

In mixed saving contracts, the ESCo provides the capital cost for the works and guarantees savings up to a certain level, if that level is exceeded and there are greater cost saving benefits, they are shared between the Esco and the client. In turn the savings payment are paid to the ESCo and equipment continues to be owned by it for the duration of the contract until the contract ends, where the equipment ownership transfers to the client.

[edit] Pay from savings

In this model the client pays for the upfront capital costs of the works, borrowing from a lender, and repays the loan in line with a specified share of the savings as they vary over time. As such the level of energy saving and the amount of repayment can vary with the energy use depending on season, occupancy as well as energy prices. In this form risks to the client are diminished by the variable rates and risks to the ESCo minimised because it has not invested the capital costs.

Key performance indicators (KPIs) can be used for a variety of project management and monitoring tasks examples of which are to:

• Monitor costs.
• Track progress.
• Assess client satisfaction.
• Identify strengths and weaknesses.
• Compare performance across and between projects.
• Assess specific areas of a project such as sustainability, safety, waste management, etc.

In terms of sustainability indicators and their assessment approach can be selected from the variety of assessment methods available, but can also be selected on an individual basis. It is important that whichever KPIs are identified, that they are important to the client brief, and measurable. They would normally be incorporated into tender documentation along with regular provision of the information required to assess as a requirement of the contract. This may require the provision of sub-contractor information where performance on specific packages is to be monitored or through a gateway process.

KPIs may be of particular importance where the contract stipulates that the contractor will be rewarded or penalised based on their performance relative to certain indicators.

see also article Key performance indicators KPI

Irrespective of the type of energy performance contract approach used, what is clear is that when translated to carbon all energy performance is primarily concerned with operational carbon, that is the carbon emissions associated with the day-to day energy use and running of a buildings. Whilst this is significant there is an increasing awareness of both the energy and carbon emissions associated with the construction of a building, and its component parts from materials to elements and products. This carbon is referred to a embodied carbon and when combined with operational carbon over the whole lifecycle of the building and its component parts maybe referred to as whole life carbon.

• Benchmarking.
• Building performance.
• Contracts for Difference.
• Energy performance contracts.
• Low Carbon Contracts Company‎.
• Milestones.
• Performance.
• Performance requirements.
• Value management.
• Whole life costs.