Model ESCO Performance Contracts Sri Lanka: USAID-SARI/Energy Program
Model ESCO Performance Contracts Sri Lanka: USAID-SARI/Energy Program
Model ESCO Performance Contracts Sri Lanka: USAID-SARI/Energy Program
USAID-SARI/Energy Program
www.sari-energy.org
Sri Lanka
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ESCOs are turn-key service providers who are responsible for an unusually wide spectrum of
tasks in that they: (a) identify, design and often finance projects, (b) install and supervise the
maintenance of most of the equipment involved in their projects, and (c) measure and
monitor the project’s energy savings. The most important aspect of ESCO projects is that the
ESCO typically guarantees that its customer's energy and operating costs will be reduced in
an amount sufficient to repay the investment cost. Should the savings be insufficient to repay
the investment cost, the ESCO will be responsible for the shortfall.
Under the Guaranteed Savings approach the ESCO bears no direct contractual obligation to
repay the Lender with respect to the debt service payment; the Host directly repays the
Lender through a separate Loan Agreement between the Lender and the Host. The ESCO’s
guarantee is not a guarantee of payment to the Lender; it is a guarantee of performance to the
Host - a promise that the project, as designed and installed, will pay for itself over the
repayment term of the project financing provided by the Lender. This guarantee is provided
through a separate contract called an Energy Services Agreement (“ESA”) between the Host
and the ESCO.
ESCOs prefer the Guaranteed Savings structure for four (4) general reasons. First, the
Lender, more qualified in credit assessment than most ESCOs, bears the Host credit risk.
Model ESCO Performance Contracts 1- 1
Section 1 Background on Model Contracts
Second, this structure keeps the ESCO’s own balance sheet clear of project debt. Third, in
the US market, this structure provides the lowest interest cost on the debt service because the
Lender is providing the funds based on the creditworthiness of the Host and does not increase
the interest rate to equity rates of return for having to assume project-related savings risk.
Finally, by segregating credit risk from project performance risk for the ESCO, the
Guaranteed Savings structure induces the Host to resolve on-going project issues
expeditiously and equitably with the ESCO since the Host bears the on-going debt service
obligations separately to the Lender.
The primary impediment of the Guaranteed Savings structure to the ESCO is that it is more
difficult to sell because it requires the Host to incur a liability and rely solely on the ESCO
savings guarantee for repayment of the project investment. This can make it very difficult to
sell to some Hosts.
Although the Shared Savings is easier to sell to Hosts than Guaranteed Savings, ESCOs
prefer the Guaranteed Savings due to the lower Project risks assumed and the substantially
lower capitalization required for them versus what is typically required by Lenders looking
for them to support their assumption of the Host’s Credit Risks. The commercial/industrial
customers in the North America also prefer the Guaranteed Savings structure because of the
lower interest costs.
ability to recover its engineering and other development costs if the Customer does not
proceed to implement the successfully developed project with the ESCO. The “Minimum
Criteria” for a "successfully developed project" is clearly articulated in the Feasibility
Agreement. The ESCO's deliverable is a report called and Investment Grade Audit
("IGA"), which typically includes the following final detailed technical, financial & legal
aspects of the project to be implemented by the ESCO:
The project details in the IGA are incorporated into the implementation contract called an
Energy Services Agreement (ESA).
The ESCO industry in Sri Lanka while still at the nascent stage is evolving into a growing
industry to meet the demand for energy services in the commercial and industrial sectors of
the economy. Lanka Transformers Limited established the first ESCO in the country and
other players have now entered the market place.
This report presents model ESCO/EE performance contracts. They are intended to be
templates to facilitate the contractual element of ESCO transactions. All parties to ESCO/EE
performance contract transactions may make use of them: the ESCO, the customer, and
potentially the lender or financial partner as well. (In many cases, the lender may not be a
party to the contract, but the contract may be an important element of the financing
documents.) The model contracts are templates in the sense that they provide a detailed
beginning toward preparation of the documents required for specific transactions. In practice,
every ESCO project is unique, and requires a unique set of contract documents with language
that responds to a specific situation and project.
Energy Services Agreement (ESA) for Commercial and Industrial Projects (Long Form)
is a detailed model performance contract that included all terms and conditions associated
with the paid-from-savings project, ESCO and customer responsibilities, financing
conditions, M&V, etc. Such a contract is executed between the ESCO and the customer
after acceptance of the investment-grade feasibility study that the ESCO develops under
the feasibility agreement.
ESA for Commercial and Industrial Projects (Short Format) is a shorter form version of
the ESA, which may be more appropriate in practice for performance contracts in Sri
Lanka.
This Feasibility Agreement (herein the “Agreement”) is made and entered into as of this __th
day of ____ 2001 by and between ______________(“ESCO”) and
_______________(Owner) for the performance by ESCO of a feasibility analysis of
OWNER’s facility located in _________(hereinafter “Facilities”), to determine the energy
consumption characteristics of the Facilities and to identify the equipment, procedures, and
other services that could be provided by ESCO in order to reduce OWNER’s energy and
other operating costs on a guaranteed basis(“Savings”).
ESCO will undertake an energy and resource utilization evaluation (“Audit”) of the
Facilities. OWNER will provide complete cooperation in connection with preparation of the
Feasibility Analysis.
A. Energy audit to identify low cost energy, and other cost saving measures, and assist in
their implementation.
B. Investment Grade Audit, to identify those cost saving measures, which require
significant capital investment.
The study would also cover any other associated areas, if found necessary.
The focus of the study would be the following energy consuming equipment/systems (the list
of energy consuming equipment/systems will vary as per the requirements of the owners of
the facility):
Electrical systems
HVAC Systems
Lighting System
Electric Motors & Drives
Compressed Air System
Boilers and Steam Systems
Any other major energy consuming equipment
Upon completion of the Audit, ESCO will present to OWNER a written report (“Feasibility
Report”) which will include at least the following information:
The focus of the study under Investment Grade Audit would be the following
equipment/systems:
All measures identified in the Feasibility Report shall meet the following minimum criteria
(“Minimum Criteria”),
total implementation cost including engineering, equipment, construction and ESCO fees
plus financing costs (“Financed Amount”) can be guaranteed by ESCO to be repaid
from Savings over a fixed period of time (“Loan Term”) (time period to be determined
by negotiation between ESCO and Owner1) based on an acceptable payback period of rate
or return calculated based on the annual Savings (“Guarantee Amount”) to repay the
Financed Amount;
recommended measures can be implemented without requiring lengthy production
shutdowns which would not have otherwise occurred due to OWNER’s normal course of
business.
1
The time period over which the investment can be paid back from the savings is dependent on the type and size
of project. While most Owners may wish projects requiring relatively lower investments to payback in 1-3
years, projects involving major process changes and large investments may take longer to repay from the
savings generated.
2.0 Payments
Upon receipt by OWNER of the IGA Report, OWNER shall either approve the said IGA
Report (“OWNER’s Approval”) within two weeks or recommend in writing changes
required for within two weeks. Upon receipt by ESCO of Owner Approval, ESCO will
proceed to facilitate and arrange financing, and get an Energy Service Agreement
approved and signed by OWNER.
ESCO will receive payment at the rate of X percent of the annual savings achieved over
X years of the contract period (which may include energy and any other resource) at the
rate of X percent each year. ESCO will monitor regularly the extent of savings achieved.
To assist ESCO in preparation of the Feasibility Analysis, OWNER will furnish (or cause its
energy suppliers to furnish) to ESCO upon its request, accurate and complete data concerning
energy usage for the Facilities This includes the following data for the most current time
period2: actual utility bills (as supplied by utility company) and other relevant utility records;
production information: descriptions of any changes in the facility structures or its heating,
cooling, lighting or other systems or energy requirements; descriptions of energy consuming
or saving equipment used in the Facilities; and descriptions of energy management and other
relevant operational or maintenance procedures presently utilized. OWNER will share prior
energy audits or studies of the Facilities.
ESCO acknowledges that all information supplied by OWNER and not already available in
the public domain (OWNER Information) is and shall remain the property of OWNER.
ESCO agrees: 1) to protect the confidential nature of OWNER’s Information in the same
manner that it protects its own confidential information; 2) to not disclose or provide copies
of OWNER Information, or any portion thereof, to any third-parties other than members of
the ESCO project team or potential financing sources; 3) upon request of OWNER to return
all copies of OWNER Information to OWNER at the termination of this ESA, and 4) to
assure that the personnel of ESCO, its engineers, Subcontractors and all other of its
2
The time period for which utility bills need to be monitored depend on the type of ECRM to be implemented.
While a simple lighting retrofit measure may not require scrutiny of bills for several years, projects in facilities
with varying production and other parameters may require monitoring of bill over a longer time period. The
ESCO should exercise its judgment in determining an appropriate time period. Typically utility bills for 12-36
months may be examined.
representative who become knowledgeable of this OWNER Information form ESCO are
bound by the same obligations of confidentiality as ESCO under this ESA.
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto subscribe
their names to this instrument on the date and year first written above.
--------------------------------------- ---------------------------------------
Name Date Name Date
This Energy Services Agreement (“ESA”) is made and entered into as of this __ day of ____
2001, by and between _________________________________(“Owner”) and
_____________________(“ESCO”). Both Owner and ESCO shall collectively be referred
to as “Parties.”
ARTICLE 1 - RECITALS
1.2 WHEREAS, Owner engaged ESCO to develop Savings at its facility by signing a
Feasibility Agreement dated __________,2001, which is attached as Exhibit-A to this ESA
and desires to engage ESCO to monitor and guarantee Savings from the ECRMs described in
the Investment Grade Audit (IGA) Report dated ______,2001 and attached to this agreement
as Exhibit-B (“Program”) subject to the terms and conditions of this ESA;
1.3 WHEREAS, ESCO is willing to accept such an engagement with Owner subject to
the terms and conditions of this ESA, and
NOW THEREFORE, in consideration of these premises and the mutual promises and
agreements herein expressed, the Parties intending to be legally bound, hereby agree to the
terms and conditions of this ESA.
Construction of all the agreed ECRMs by the ESCO; and as defined under Article-3
Provision of post-construction Operating Services by ESCO pursuant to Article 4
ARTICLE 3 - CONSTRUCTION
ESCO shall construct the ECRMs in the IGA commencing from _________ 2001 and
completing by ___________2001 (“Construction Period”).
3.1 ESCO Obligations During the Construction Period, ESCO shall provide the
following:
Provide necessary assistance in the construction of the ECRMs agreed to in the IGA in
accordance with the specifications provided by ESCO to ensure adequate Savings
performance
Permit ESCO’s access to the site for verification of equipment and installation to ensure
that the integrity of the Savings planned for in the IGA are achieved following
construction
Exercise reasonable due diligence and insurance to protect the implemented ECRMs from
harm, theft or misuse
Following Construction Completion of each ECRM, ESCO shall provide the following
services to the Owner:
A. Guarantee Period
ESCO shall provide a Savings Guarantee for the total of ECRMs implemented under this
ESA for _______years from Effective Date (“Guarantee Period”).
B. Guarantee Amount
During the Guarantee Period, ESCO guarantees that Owner shall realize Savings in
accordance with Article 2.1 of the Feasibility Agreement (Energy, Water and Waste
Recovery Audit (Low-cost measures)) and pursuant to the Savings Calculation Method
attached as Exhibit-C which amount equals Rs. ____Lakh Per annum (“Guarantee
Amount”).
C. Deficit Savings
For each quarter (three month period), ESCO shall provide Owner with an invoice, which
shall calculate in accordance with Exhibit-C a cumulative record of actual Program Savings,
achieved on all ECRMs since signing of the ESA or Effective Date, whichever is earlier. To
the extent that such cumulative actual Savings are less than the cumulative Guarantee
Amount (“Deficit Savings”), ESCO shall reimburse Owner for said Deficit Savings on a
semi-annual basis beginning six (6) months from the Effective Date3.. If Deficit Savings
payments have been made to Owner by ESCO and if the cumulative Deficit Savings are
reduced in subsequent quarters, Owner shall first reimburse ESCO for the amount of said
reduction in Deficit Savings before calculating any Contingent Service Fees.
4.2 Monitoring ESCO shall provide the Measurements & Verification services in
accordance with the frequency specified in Exhibit-D.
5.1 Operating Hours Owner shall abide by the operating hours specified in Program for
each of the ECRMs. Even if there is any change in the operating hours of any of the sections,
equipment or machinery pertaining to one or more of the ECRMs, the savings calculations
will be based on Exhibit-C only.
5.2 Cost of Energy & Water Cost of electrical energy is taken as Rs.____ per kWh and
cost of water is taken as Rs.____ per kL of water. Even if there is any revision in the cost of
energy and water, the above values will be valid during the guarantee period for the
calculation of savings. Besides, even if cheap water is available for the plant during the
guarantee period, the credit for saving water by reuse should be given to ESCO. (Add cost of
other fuels and utilities, as applicable).
3
The actual time frame for payments to the Owner or to the ESCO and the terms of such payment are generally
negotiated between the Owner and the ESCO, and follows traditionally accepted practice in the marketplace.
5.3 Notification Owner shall notify ESCO of any known changes in the Facilities and
ECRMs by delivering a written notice to ESCO describing and explaining all such actual or
proposed changes and their anticipated effect on energy use (if known).
5.4 Reporting of Malfunction and Emergencies Owner shall use its best efforts to
immediately notify ESCO or its representative of the occurrence of any significant
malfunction, alteration or change in the Facilities, ECRMs or energy supply to the Facilities.
If Owner shall negligently delay in so notifying ESCO or its designee of a significant
malfunction or emergency, Owner shall be responsible to ESCO for any actual direct loss, or
damage, including loss of Savings4. Owner's obligation to use its best efforts to notify ESCO
as soon as reasonably possible shall be deemed satisfied if Owner notifies ESCO of any said
material malfunction within twenty-four (24) hours of Owner's actual knowledge of the
occurrence.
5.5 Maintenance Responsibilities Owner shall maintain all ECRMs. In addition, Owner
shall maintain the Facilities in good condition and shall use its best efforts to protect and
preserve the ECRMs and the operating condition of all-mechanical systems and energy-
related systems located in the Facilities. If Owner fails to materially perform its maintenance
responsibilities as defined in the Financing Report such that the Savings contemplated to be
achieved under this ESA are negatively affected, ESCO shall have the right to perform said
maintenance and charge Owner for the cost of such work, and any lost Savings shall be added
to actual calculated Savings under this ESA. Owner shall not move, modify, remove, adjust,
alter or change in any material way the ECRMs, or any part thereof, after Construction
Completion and during the term of this ESA, without prior written direction or approval of
ESCO, except in the event of an occurrence reasonably deemed by Owner or ESCO to
constitute a bona fide emergency.
6.1 Owner Payments to ESCO Owner agrees to pay ESCO a Contingent Service Fee
equal to __% of the Savings achieved each quarter as calculated pursuant to the Savings
Calculation Method set forth in Exhibit-C until the end of the Guarantee Period. Time as to
payment is of the essence.
6.2 Billing Procedures The amount of Contingent Service Fees shall be calculated and
billed by ESCO each quarter under the procedures described below:
ESCO shall visit the pilot project site for at least two days after each quarter from the
effective date (i.e. during second week of ________ 2001 ______ 2002, _______ 2002
and _________ 2002) for monitoring of the ECRMs.
4
The period for notification is dependent on the ECRM to be implemented and the complexity of the facility.
This is generally a negotiated time period between the ESCO and Owner.
Owner shall provide ESCO with copies of all energy bills and/or other required data
(most important being the operating hours for each of the ECRMs) of the preceding
months required for ESCO to calculate the Savings pursuant to the Savings Calculation
Method in Exhibit-C
Upon receipt of the required information and following any further measurements
required as defined in Exhibit-C, ESCO shall calculate the Savings in accordance with the
Savings Calculation Method and prepare and send to Owner a quarterly invoice which
shall document the amount of Savings achieved during the period and the Contingent
Service Fees due ESCO
All calculations and estimates by ESCO shall follow generally accepted engineering and
accounting principles, and shall be submitted in
writing to Owner. Owner shall make any objections to the calculations and estimates in
writing within ten (10) days. If no such objections are raised, Owner shall be deemed to
have approved the calculations and estimates
6.3 Payment Terms Owner agrees to pay ESCO all amounts due under this ESA. ESCO
has already received Rs. ___ Lakh on account adjustable advance. This amount would be
adjusted towards ESCO’s payment at the end of the project, i.e. after monitoring and
verification of all the ECRMs over the Guarantee Period.
ARTICLE 7 - TERMS
This ESA shall be in force and effect upon its Effective Date and shall terminate when the
Guarantee Period ends on ______________.
8.1 Applicable Law Nothing contained herein shall be construed as constituting any
relationship of partnership within the meaning of that expression under any partnership laws
and/or tax laws or joint venture or sharing of profits between the Parties.
8.2 Notifications All Notices to be given by either Party to the other shall be in writing
and must be either delivered or mailed by registered or certified mail, return receipt
requested, to the addresses included on the signature page of this ESA or such other addresses
as either may hereinafter designate by a Notice to the other. Notices are deemed delivered or
given and become effective upon actual receipt. Notice served by ESCO upon the Owner
Representative shall be deemed to be sufficient notice to the Owner.
8.3 No Waiver The failure of either Party to insist upon the strict performance of the
terms and conditions hereof shall not constitute or be construed as a waiver or relinquishment
of either Party's right to thereafter enforce the same in accordance with this ESA in the event
of a continuing or subsequent default on the part of the other Party.
8.4 Severability In the event that any clause or provision of this ESA or any part thereof
shall be declared invalid, void or unenforceable by any court having jurisdiction, such
invalidity shall not affect the validity or enforceability or the remaining portions of this ESA
unless the result would be manifestly inequitable or unconscionable.
8.5 Complete Agreement This ESA, together with all Schedules and Exhibits
incorporated herein and/or attached hereto, shall constitute the entire ESA between the
Parties, and this ESA may not be amended or modified except by a writing signed by both
Parties; provided that certain Schedules and Exhibits, to the extent permitted by this ESA,
may be amended from time to time by mutual agreement of both Parties. This ESA
supersedes and replaces any and all prior agreements of the Parties.
8.6 Further Documents The Parties shall execute and deliver all documents and perform
all further acts that may be reasonably necessary to effectuate the provisions of this ESA.
8.7 Headings Headings and subtitles used throughout this ESA are for the purpose of
convenience only, and no heading or subtitle shall modify or be used to interpret the text of
any section.
IN WITNESS WHEREOF, and intending to be legally bound, the Parties hereto subscribe
their names to this instrument on the date, month and year first written above.
By: By:
Title: Title:
Signature: Signature:
Date: Date:
EXHIBIT-A
Energy Services - Feasibility Agreement
EXHIBIT-B
Program
EXHIBIT-C
Savings Calculation Method
EXHIBIT-D
Monitoring and Verification (M&V) Protocols.
This Energy Services Agreement (“ESA”) is made and entered into as of this
……………….. day of ……………………… , 2001, (“Effective Date”) by and between
………………………….(“Owner”) and Energy Services Company ……………………...
(“ESCO”) Owner and ESCO shall each be referred to as a “Party” or collectively as
“Parties”.
ARTICLE 1 - PURPOSE
The purpose of this ESA is for ESCO to implement Energy Cost Reduction Measures
(“ECRMs”) as defined in the Feasibility Agreement between Owner and ESCO, dated
………………. , 2001.(“FA”). The location of the facilities (“Facilities”) in which the
ECRMs will be installed and a detailed description of the ECRMs is provided in the
Investment Grade Audit (“IGA”) prepared by ESCO which is incorporated herewith as
Exhibit A. The ECRMs are anticipated to result in reductions of energy and/or operating
costs (“Savings”), as set forth in the IGA. ESCO shall arrange financing, engineer, procure,
construct, monitor, manage, coordinate and guarantee the Savings performance of the
ECRMs, (hereinafter referred to as the (“Project”), subject to the terms and conditions of this
ESA.
2.1 Scope The Project shall be implemented by ESCO in the following two (2) phases :
2.2 Owner Cooperation Owner shall provide all information in a timely manner as
required for the Project’s performance, including, but not limited to:
Available drawings of the systems and equipment at the facilities which use energy
resources or other types of utilities
All available records and data concerning energy usage for the Facilities and other
relevant information (if not available, Owner shall cause its energy suppliers to furnish)
Any known special legal or construction requirements relating specifically to the
Facilities which differ from those generally applicable to construction
Any available prior energy audits of the Facilities and descriptions of energy management
procedures presently utilized, and
Financial, legal and other operating data as may be reasonable required by potential third
party financing sources to evaluate the creditworthiness of Owner and finance the Project
Owner shall cooperate with ESCO in optimizing the Savings achieved from the Project and
minimizing implementation costs throughout the term of the ESA. Owner shall also
cooperate with the third-party financing sources to consummate the financing of the Project.
Owner shall make available its engineers, maintenance and operating staff for interviews with
ESCO plus any other knowledgeable officers, employees and agent for consultation as may
be required from time to time. Within thirty (30) days of the Effective Date of this ESA,
Owner shall have the express authority to approve or authorize on behalf of Owner all Project
matters requiring Owner’s approval or authorization, including, but not limited to approval of
: schedules, changes in the work, and other matters. The Owner Representative shall render
such decisions promptly and furnish information expeditiously so as to avoid unreasonable
delay in the Project services or work of ESCO.
Owner shall execute the Loan and Security Agreements attached as Exhibit B, which when
executed, shall collectively be referred to as the Loan. Execution of the Loan shall hereafter
be referred to as “Closing”.
ARTICLE 4 - INSTALLATION
Upon Closing, ESCO shall design and build (including engineering, procurement and
construction) each ECRM described in Exhibit A pursuant to the terms of this ESA. The
period from Closing to Construction Completion shall be referred to as the “Construction
Period”.
provide daily access to the Facilities for ESCO or its authorized subcontractors, vendors
and agents to perform any function related to this ESA during regular business hours, or
such other hours as may be reasonably requested by ESCO
permit night, weekend and holiday work and strive to permit reasonable and timely access
to ESCO and its agents for the purpose of expediting Construction Completion as ESCO
may, in its reasonable discretion, determine is needed
review and approve Engineering Designs and ECRMs within 15 days
approve Progress Payments pursuant to Article 8.1
obtain all applicable licenses, permits and approvals for the ECRMs
accept certain temporary inconveniences necessary for implementation and
commissioning of the ECRMs, and permit performance of the work pursuant to the
agreed Construction Schedule in Exhibit C
provide electrical power, water, elevating and other service reasonably required for the
execution of the work by ESCO and its subcontractor
provide sufficient rent free space in the Facilities for the Construction and operation of
the ECRMs
exercise reasonable due diligence to protect the implemented ECRMs from harm, theft or
misuse
4.3 Subcontractors and Subcontracts ESCO shall perform and execute the provisions
of this ESA as an independent contractor to Owner and shall not be an agent or employee of
Owner for any purpose. ESCO shall have the right to have any portion of the Project or any
other obligation of ESCO undertaken in connection with its performance of this ESA
accomplished by subcontractors and vendors other than ESCO (“Subcontractors”), pursuant
to written subcontracts between ESCO and such Subcontractors. All such subcontracts shall
be subject to, consistent with, and require the Subcontractors to satisfy, all applicable terms
and conditions of this ESA and shall be in conformance with all applicable laws, including,
without limitation, those regarding the presentation of documents proving payment of taxes
and those regarding applicable environmental laws and regulations. Subcontractors shall be
selected by ESCO and approved by Owner, and ESCO shall be solely responsible for the
satisfactory performance of Subcontractors. No contractual relationship shall exist between
Owner and any Subcontractor with respect to the Project work to be performed hereunder.
4.4 Substantial Completion ESCO shall use its best efforts to ensure that Substantial
Completion shall occur on or before the date specified in EXHIBIT C. ESCO shall deliver to
the Owner a written Notice of Substantial Completion not more than thirty (30) days and not
less than fifteen (15) days prior to Substantial Completion. It is agreed by both parties that
the definition of Substantial Completion shall be when substantial completion and beneficial
use of the ECRMs by the Owner is achieved at a rate of 90% of projected values. If the
parties hereto are unable to agree during such good faith negotiations, the matter shall be
submitted to arbitration pursuant to Article 15.2 hereof
4.5.1 Within thirty (30) days after receipt of ESCO’s notice of Substantial Completion, the
Owner shall inspect the Project and 1) either prepare and deliver to ESCO a written
4.5.2 If timely written notification is not provided by the Owner that Substantial Completion
has not occurred within the thirty (30) day period, as stipulated herein, COMPLETION
shall be deemed to have occurred.
4.6 Hazardous Substances It is expressly agreed by Owner that, except for any
Hazardous Substances that are brought on site by ESCO or its Subcontractors or as may be
otherwise explicitly agreed to in writing by ESCO, ESCO shall have no responsibility and
shall bear no cost or liability regarding Hazardous Substances found in the Facilities during
performance of any work in the Facilities. Owner will indemnify ESCO for any costs or
expenses of any kind which ESCO incurs with respect to pre-existing conditions regarding
such Hazardous Substances and shall defend, indemnify and hold ESCO harmless from and
against any and all claims, losses, delays, liabilities, costs, expenses and/or damages
including, without limitation, legal fees and expenses which ESCO may sustain or incur or
which arise out of or relate in any way to Hazardous Substances.
5.1 Owner Modifications. Owner may at any time by written notice to ESCO, add,
suspend or otherwise revise Project work on any ECRM or expand the Project to include
additional facilities (“Owner Modification”) subject to the following:
5.1.1 The ECRM is still economically and operationally viable based on ESCO’s analysis of
the revised Savings and Project Costs caused by Owner’s change
5.1.2 The Project is able to be financed pursuant to Article 3 based on any resulting revised
Project Savings and Total Construction Cost
5.1.3 The Project is unable to be financed based on the revised ECRMs pursuant to Article
3 and Owner pays ESCO directly for the Project cost impact caused by the
modification
5.1.4 ESCO shall not be required to implement any Owner Modification until the Parties
sign a written agreement with respect to items 5.1.1, 5.1.2, and 5.1.3 above
5.2 Cost Increases If increases in the total Construction Cost render an ECRM
not economically viable, based upon ESCO’ analysis of the revised Savings and Project
Costs, and such increases are due to: (a) Owner actions or omissions causing additional work,
(b) reasons which could not reasonably have been anticipated or controlled by ESCO, ( c )
wrongful act, omission or breach of ESA by Owner, or (d) delays for which ESCO is entitled
to an extension of time as described in Exhibit C, then Owner shall pay ESCO directly for the
Project Cost impact caused thereby. If ESCO incurs costs after Completion due to items (a)
through (d) herein, such as additional monitoring, baseline adjustments or Programming and
engineering analyses, Owner shall pay ESCO for such additional costs.
5.3 Savings Changes ESCO may experience losses of actual or anticipated Savings
for reasons which could not reasonably have been controlled by ESCO. The circumstances
may include, without limitation, such things as:
in the event of a temporary loss of Savings (i.e., one lasting less than ninety (90) days),
Savings shall be based on an estimate of what would have been achieved had such an
event not occurred, or
in the event of a permanent loss of Savings (i.e., one lasting more than ninety (90) days),
ESCO shall adjust the baseline (the energy and operating costs prior to the event of a
permanent loss of Savings to be improved by this ECRM) by an amount calculated to
offset the effect of such event on the Savings Calculation Method
5.4 Upgrading or Altering the ECRMs ESCO shall at all times have the right to
propose to Owner changes to the ECRMs, revisions of any procedures, or implementation of
other energy benefit actions in the Facilities, provided that the standards of performance set
forth in the IGA shall not be reduced. Owner agrees to not to unreasonably withhold
approval of such changes proposed by ESCO.
5.5 Deletion of ECRMs Owner may, upon written notice to ESCO, delete or withdraw
any ECRM or proposed ECRM, subject to payment of the remedies in Article 13.2 and other
provisions of this ESA.
6.1 Guarantee Period ESCO shall provide a Savings guarantee according to Article
6.2 for each ECRM implemented under this ESA from Completion until the conclusion of the
repayment term of the Lease (“Guarantee Period”).
6.2 Guarantee Amount During the Guarantee Period, ESCO guarantees that the Owner
shall realize an amount of Savings according to the Savings Calculation Method in Exhibit D
at least equal to the Loan payments required to repay the Construction Costs of the ECRMs
(Guarantee Amount). This Guarantee Amount shall apply to all ECRMs implemented by
ESCO in this ESA;
6.3 Deficit Savings Each month, ESCO shall provide Owner with an invoice, as
described in Article 8.3 which shall calculate a cumulative record of actual Project Savings
achieved on all ECRMs since signing of the ESA. To the extent that such cumulative actual
Savings are less than the cumulative Guarantee Amount (Deficit Savings), ESCO shall
reimburse Owner for said Deficit Savings on an annual basis beginning one (1) year after
Construction Completion. If Deficit Savings payments have been made to the Owner by
ESCO and if the cumulative Deficit Savings are reduced in subsequent months, Owner shall
first reimburse ESCO for the amount of said reduction in Deficit Savings before payment of
any Contingent Service fees to ESCO pursuant to Article 8.2.
7.1 Notification Owner shall notify ESCO of any known changes in the Facilities and
ECRMs by delivering a written notice to ESCO describing and explaining all such actual or
proposed changes and their anticipated effect on energy use (if known). Said notice shall be
delivered to ESCO no less than thirty (30) days before any actual or proposed change occurs
except for those changes that occur or may occur because of a boa fide emergency situation
or other occurrence not within the control of Owner in which event such notice shall be
deemed sufficient if given by Owner within twenty four (24) hours after the occurrence
happened or was discovered to have happened.
7.2 Reporting of Malfunction and Emergencies Owner shall use its best efforts to
immediately notify ESCO or its representative of the occurrence of any significant
malfunction, alteration or change in the Facilities, ECRMs or energy supply to the Facilities.
If Owner shall negligently delay in so notifying ESCO or its designee of a significant
malfunction or emergency, Owner shall be responsible to ESCO for any actual direct loss, or
damage, including loss of Savings. Owner’s obligation to use its best efforts to notify ESCO
as soon as reasonably possible shall be deemed satisfied if Owner notifies EPS of any said
material malfunction within twenty-four (24) hours of Owner’s actual knowledge of
occurrence.
8.1 Lender Payments to ESCO Upon Closing of the Lender, Lessor shall pay ESCO the
fees set out in the IGA construction mobilization advance equal to …….. % of the total
Construction Cost of the ECRMs as estimated in the Feasibility Report. During the
Construction Period, Lessor shall pay ESCO monthly payments (“Progress Payments”) bases
on actual work performed versus the schedule of values in Exhibit C.
8.2 Owner Payments to ESCO Upon Substantial Completion of the ECRM, Owner
agrees to pay ESCO or its assignee the Loan Payments and the Service Fees designated in
the IGA.
8.3 Billing Procedures The amount of Service Fees in Article 8.2 shall be calculated
and billed by ESCO each month under the procedures describe below.
8.3.1 Within ten (10) working days of Owner’s receipt, Owner shall provide ESCO with
copies of all energy bills, production and sales data, and/or other data of the preceding month
required for EPS to calculate the Saving pursuant to the Savings Calculation Method in
Exhibit D;
8.3.2 Upon receipt of the required information, ESCO shall calculate the savings in
accordance with the Savings Calculation Method and prepare and send to Owner a monthly
invoice which shall document the amount of Savings achieved and the Contingent Service
fees due ESCO. If Owner disagrees with the invoiced amount, it shall so notify ESCO within
(10) ten business days of receipt of ESCO’ invoice, giving specific reasons for such
disagreement, and the parties shall attempt in good faith to resolve such disagreement. If the
parties are unable to resolve the disagreement within forty-five (45) days after ESCO’
invoice, the matter shall be resolved pursuant to Article 15.2 of this ESA. Notwithstanding
such disagreement, Owner shall pay ESCO any agreed amount due.
8.3.3 If ESCO has not received from Owner the necessary data required in the Savings
Calculation Method for any ECRM, within fourteen (14) days after the receipt of such data
by Owner, ESCO shall have the right to estimate the amounts due ESCO and bill Owner for
the Service Fee amounts expected to be received pursuant to each IGA, and Owner shall pay
ESCO such estimated amount. Upon receipt of the data, ESCO shall calculate the actual
Savings and make any appropriate adjustment of ESCO’s next billing.
8.3.4 All calculations and estimates by ESCO shall follow generally accepted engineering
and accounting principles, and shall be submitted in writing to Owner. Any objections to the
calculations and estimates shall be made by Owner in writing within fourteen (14) days. If
no such objections are raised, Owner shall be deemed to have approved the calculations and
estimates.
8.4 Payment Terms Owner agrees to pay ESCO all undisputed amounts due under
this ESA within thirty (30)days of ESCO’ invoice date. Owner agrees to pay ESCO a late
payment penalty of 2.0% per month on the outstanding balance of all payments not received
within thirty (30)days of the ESCO invoice date.
8.5 Payment Disputes Owner shall approve the undisputed part of any invoice or
Progress Payment and shall reimburse ESCO for any late payment charges, penalties or other
fees imposed on ESCO as a result of any unwarranted delay in making payments or directing
payments to ESCO from Lessor. If Owner wrongfully fails to approve any payment when
and as due, ESCO may, upon ten (10)days’ written notice, suspend further work and services
in whole or in part until all payments due are paid in full with any late payment charges,
penalties or other fees. The parties will attempt, in good faith, to resolve any problems
related to the Progress Payment invoices or direct payments to ESCO. If the parties are
unable to resolve any disputed amounts within forty-five (45)days after submission of ESCO’
invoice for payment, the matter shall be resolved pursuant to Article 15.2 of the ESA.
ARTICLE 9 - OWNERSHIP
9.1 ECRMs Ownership of the ECRMs shall be determined according to the Loan.
9.2 Ownership of Proprietary Property Rights Owner shall not, by virtue of this ESA,
acquire any interest in any formulas, patterns, devices, secret inventions or processes,
copyright, patent, other intellectual or proprietary rights, inventions or processes, or similar
items of property which are or may be used in connection with the ECRMs.
9.3 Current Equipment. Notwithstanding any other provision of this ESA, Owner shall
retain ownership and possession of all equipment and systems that were on-site prior to the
signing of this ESA.
9.4 Drawings and Specifications All of the drawings, specifications, computer software
and documents, prepared through the efforts of ESCO’ staff and Subcontractors remain the
property of ESCO, and shall not be disclosed or used by Owner to a third party, without the
written consent of ESCO. The drawings, CAD files and specifications shall become the
property of the Owner upon Construction Completion.
In addition to the Parties’ rights and remedies in this ESA , if ESCO or Owner shall be
unable to reasonably perform any of its obligations under this ESA due to “Force Majeure”
defined as acts of God, insurrections or riots, fire, flood, earthquakes, explosion, war,
sabotage, government decrees, changes in the law or regulations related to the work,
subsurface or latent or concealed conditions at the Facilities, any casualty loss or damage, or
other conditions not specifically contemplated by the ESA which, by the exercise of
reasonable diligence, could not be prevented, then the Parties may prolong the terms of this
ESA by the period of actu4al existence of such conditions. If such conditions exist for more
than 180 days, the performing Party may choose to terminate the impacted portion of this
ESA by a written notice to the non-performing Party, in which event neither Party shall have
any further liability to the other except that EPS shall be entitled to receive all monies due
ESCO for work performed to the time of said termination plus reimbursement of any
penalties or damages due to others from ESCO as a result of said termination.
ARTICLE 11 - INSURANCE
11.1 ESCO’ Insurance ESCO agrees to secure, prior to construction commencement and
during the Construction Period, “Builder’s Risk” insurance coverages sufficient to cover
actual repair costs and general liability damages caused by ESCO in Owner’s Facilities. The
total construction costs of the ECRMs under construction. General liability insurance shall
include such thing as bodily injury, death, and property damage. ESCO also agrees to
provide such other insurance as may be required by a Lender.
12.2 Remedies In the event of Default by ESCO pursuant to Article 12.1, Owner may,
without a waiver of any other remedies which exist in law or equity, exercise any and all
remedies at law or equity, or institute other proceedings, including without limitation,
bringing an action or actions from time to time for specific performance, and/or for the
recovery of amounts due and unpaid and/or for actual damages incurred. In no event,
however, will ESCO be liable for any consequential or indirect damages, including without
limitation any lost profits or damages for interruption of Owner’s business. The Party who
shall prevail in any such proceeding shall be entitled to recover all costs and expense
reasonably incurred, specifically including attorneys fees, from the other Party. If such
default by ESCO occurs during the Construction Period, Owner may, upon notice to ESCO,
perform any work or obligations which ESCO fails to perform and which Owner is capable
of performing, and set off any costs so incurred and other damages, costs and expenses
against Savings, and any other monies owing by Owner to ESCO. Notwithstanding the
foregoing, Owner shall not be obligated to perform any such work or obligations. The
performance by Owner of such work or obligations shall not limit the rights and remedies of
Owner under this ESA.
13.2 Remedies In the event of Default by Owner pursuant to Article 13.1, ESCO may,
without a waiver of any other remedies which exist in law or equity exercise any and all
remedies at law or equity, or institute other proceedings, including without limitation,
bringing an action or actions from time to time for specific performance, and/or for the
recovery of amounts due and unpaid and/or for actual damages incurred. The Party who shall
prevail in any such proceeding shall be entitled to recover all costs and expenses reasonably
incurred, specifically including, attorneys’ fees, from the other Party. In addition to all other
claims/remedies for damages, ESCO may obtain the remedies described below in this Article
13 for an individual ECRM being developed, constructed, or operating, with each of articles
13.2.1 through 13.2.3 applying as appropriate for each ECRMs then-current phase of
development, should an Owner default occur or as otherwise permitted in this ESA.
13.2.1 Development Phase Prior to Closing of Project financing, ESCO may require Owner
to pay the termination fees in FA plus all incurred additional costs from the Effective Date of
this ESA, based on the time worked by ESCO personnel multiplied by their respective
current published ESCO billing rates, plus all external costs marked up for ESCO’ normal
profit and overhead and any penalties or other liabilities incurred.
13.2.2 Construction Period During the Construction Period, ESCO may require Owner to
pay ESCO the remedies in Article 13.2.1 plus a reasonable estimate of ESCO’ lost profits
calculated at ten percent (10%) of the difference between the construction costs incurred to
date and the final estimated costs provided to Owner in the IGA.
13.2.3 Post Construction Period After the Construction Period, ESCO may require Owner
to pay ESCO the Termination Fee calculated pursuant to Exhibit E.
13.2.4 Payment The foregoing remedy payments shall become immediately due and
payable upon receipt by Owner of ESCO’ invoice without any other formality or delay and,
upon such payment, the obligations and rights of the parties hereunder shall cease. Any and
all reasonable attorney fees incurred by ESCO shall be paid by Owner.
ARTICLE 14 - TERMINATION
14.1 By ESCO
14.1.1 Development Phase Prior to closing of Closing of the Loan ESCO may at its sole
option terminate this ESA by providing written notice to Owner without any further
obligations to Owner, and upon such termination Owner shall have no further payment
obligations to ESCO and ESCO shall have no further obligations to Owner under this ESA.
14.1.2 Owner Default In the event of a Default by Owner as described in Article 13.1,
ESCO may terminate this ESA and exercise the remedies in Article 13.2.
14.2 By Owner
14.2.1 Post Construction Period Subsequent to Completion, Owner may terminate this
ESA by paying ESCO the Termination Fee calculated pursuant to Exhibit E.
14.2.2 ESCO Default In the event of a default by EPS as described in Article 12.1, Owner
may terminate this ESA and exercise it remedies in Article 12.2.
ARTICLE 15 - DISPUTES
15.1 Non-technical The Parties agree to use their best efforts to solve any dispute,
controversy, or claim arising out of, in connection with, or relating to this ESA or the breach
thereof not involving the application of technical engineering or construction principles or
practices, in an amicable way by mutual agreement. If such agreement is not reached, the
dispute shall be submitted to arbitration pursuant to the Construction Industry Arbitration
Rules of the Arbitration Court located in ………………………………. , and the award of
the arbitrators shall be final and binding and shall be enforceable in any court of competent
jurisdiction.
15.2 Technical The parties agree to use their best efforts to solve any dispute, controversy,
or claim arising out of, in connection with, or relating to this ESA or the breach thereof
involving the application of technical engineering or construction principles or practices, in
an amicable way by mutual agreement. Within ten (10) business days after the filing of a
demand of arbitration, either Party may notify the other that the matters stated in the demand
involve the application of technical engineering or construction practices or procedures (a
“Technical Dispute”) and propose the selection of engineer arbitrators pursuant to this
paragraph (a “Technical Dispute Notice”). If the other Party disagrees that a Technical
Dispute exists, or fails to respond to the technical Dispute Notice within ten (10) business
days, the Dispute shall be resolved, and arbitrators shall be selected, in accordance with the
procedures set forth in article 15.1. If the Party in receipt of a Technical Dispute Notice
agrees that a Technical Dispute exists, it shall so advise the other Party in writing and each
Party shall appoint an engineer as arbitrator within ten (10) business days thereafter. If each
Party selects a different engineer, the two Party-appointed arbitrators shall select a third
engineer mutually acceptable to them and notify the Parties of his appointment in writing.
The appointment of arbitrators as set forth above, and the conduct of the arbitration
thereafter, shall be governed by the Construction Industry Arbitration Rules of the American
Arbitration association then in effect. The award of the arbitrators shall be final and binding
and shall be enforceable in any court of competent jurisdiction.
ARTICLE 16 - TERM
This ESA shall be in force and effect upon its Effective Date and shall terminate when the
guarantee Period ends on the last ECRM or as otherwise terminated in the ESA.
ARTICLE 17 - ASSIGNMENT
17.1 By Owner Owner may transfer or assign this ESA and its rights and obligations
herein to a successor or to a purchaser of the Facilities or an interest therein, provided said
successor or purchaser is of equal or better financial strength and assumes Owner’s obligation
under this ESA. In the event ESCO or Lender acts responsibly and does not approve the
proposed assignee and Owner elects to proceed with the assignment, this ESA shall be
terminated and ESCO shall be entitled to the remedies in Article 13.2 on all ECRMs
developed/implemented in the ESA.
17.2 By ESCO Other than assignment of its payments and interests under this ESA to the
Lender, ESCO shall not assign, delegate, or transfer any of the personal services it is required
to perform in this ESA without the express prior written approval of Owner, said consent not
to be unreasonably withheld. ESCO shall notify Owner in writing of any assignments of
payments, and except for assignment to Lender, Cient shall either approve or notify ESCO of
reasons for not approving within ten (10) business days of receipt of such notification. If
Owner does not respond in writing within the ten (10) days, the assignment shall be deemed
approved.
ARTICLE 18 - INDEMNIFICATION
ESCO and Owner shall indemnify, defend and hold each other harmless form any and all
claims, actions costs, expenses, damages and liabilities, including attorneys’ fees, arising out
of connected with, or resulting from sole negligence or willful misconduct of that party’s
employees or agents. However, neither party shall indemnify the other against claims,
damages, expenses, or liabilities resulting from alleged, claimed or concurrent negligence or
misconduct of the other party. The duty to indemnify shall continue in full force and effect
notwithstanding the expiration or early termination of this ESA, and shall exist with respect
to any claims based on facts or conditions which occurred prior to any said termination.
Forthwith upon obtaining knowledge thereof, the indemnified party shall notify the
indemnifying party of any claim or demand which the indemnified party has determined has
given or could give rise to a claim for indemnification under this Article 18. If such claim or
demand relates to a claim or demand asserted by a third party against the indemnified party,
then the indemnifying party shall have the right to defend the same at its own cost and
expense with counsel of its own selection.
19.1 ESCO acknowledges that all information supplied by Owner and not already available
in the public domain (Owner Information) is and shall remain the property of Owner. ESCO
agrees: 1) to protect the confidential nature of Owner Information in the same manner that it
protects its own confidential information; 2) to not disclose or provide copies of Owner
Information, or any portion thereof, to any third-parties other than members of the ESCO
project team or potential financing sources; 3) upon request of Owner, to return all copies of
Owner Information to Owner at the termination of this ESA, and 4) to assure that the
personnel of ESCO, its engineers, Subcontractors and all other of its representative who
become knowledgeable of this Owner Information form ESCO are bound by the same
obligations of confidentiality as ESCO under this ESA.
19.2 Owner hereby acknowledges that the information supplied by ESCO under the
performance of its services under this ESA, and all other data prepared and/or provided by
EPS to Owner (ESCO Confidential Information) are and shall remain the property of ESCO
until Project Completion occurs. Owner agrees : 1) to maintain ESCO Confidential Data in
the same confidential manner that it protects it own confidential information; 2) not to
disclose, make or provide copies of ESCO Confidential Data or any portion thereof to any
third-party without the express written consent of ESCO; 3) not to use such information or
any portion thereof for any purpose except for Owner’s internal evaluation of the work
performed by ESCO in this ESA; 4) to return all ESCO Confidential Data and copies thereof
to ESCO upon ESCO’ termination of this ESA or upon written request by ESCO, 5) not to
use ESCO Confidential Data or any facts, opinions, conclusions or information taken in any
form therefrom, or permit that it be used to implement any portion of the ECRMs in this ESA
with any person or company except ESCO, and 6) that, except for Default by ESCO, the
condition of confidentiality required of Owner herein shall survive termination of this ESA,
irrespective of the cause of such termination.
it has all requisite power, authority, licenses, permits and franchises, corporate or
otherwise, to execute and deliver this ESA and perform its obligations hereunder
its execution, delivery, and performance of this ESA have been duly authorized by, or are
in accordance with its organic instruments and this ESA has been duly executed and
delivered for it by the signatories so authorized, and it constitutes its legal, valid, and
binding obligation
its execution, delivery, and performance of this ESA shall not result in a breach or
violation of, or constitute a default under, any agreement, lease, or instrument to which it
is a party or by which it or its properties may be bound or affected; and
it has not received any notice, nor to the best of its knowledge, is there pending or
threatened any notice, of any violation of any applicable laws, ordinances, regulations,
rules, decrees, awards, permits, or orders which would materially and adversely affect its
ability to perform hereunder
shall permit ESCO to utilize historic energy cost data and tariffs in effect as of the
Effective Date of this ESA as the basis for valuing Savings and for use in the Savings
Calculation Methodology for all Measures developed or implemented in the Project
20.2 Additional Representations ESCO hereby warrants, represents, and promises that it:
shall carry out its professional duties with care and diligence, and that it shall ensure that
all of its subcontractors do likewise
shall make available, upon reasonable request, documents and records relating to its
performance under this ESA
shall use Subcontractors who are qualified to perform the work so subcontracted or
delegated pursuant to the terms hereof, as approved by Owner pursuant to each Financing
report; and
shall not disclose any confidential information obtained by reason of the Project, nor shall
it use any such information for any purpose other than the completion of the Project
without the written consent of Owner
21.2 Notifications All notices to be given by either party to the other shall be in writing
and must be either delivered or mailed by registered or certified mail, return receipt
requested, addressed to the Chief Executive Officer of the appropriate party at the address set
forth on the signature page of this ESA, or such other addresses as either party may
hereinafter designate by a Notice to the other. Notices are deemed delivered or given and
become effective upon actual receipt.
21.3 No Waiver The failure of either party to insist upon the strict performance of the
terms and conditions hereof shall not constitute or be construed as a waiver or relinquishment
of either party’s right to thereafter enforce the same in accordance with this ESA in the event
of a continuing or subsequent default on the part of the other party.
21.4 Severability In the event that any clause or provision of this ESA or any part thereof
shall be declared invalid, void or unenforceable by any court having jurisdiction, such
invalidity shall not affect the validity or enforceability or the remaining portions of this ESA
unless the result would be manifestly inequitable or unconscionable.
21.5 Complete Agreement This ESA, together with all Schedules, Attachments
incorporated herein and/or attached hereto, shall constitute the entire ESA between the
parties, and this ESA may not be amended or modified except by a writing signed by both
parties; provided that certain Schedules and Exhibits, to the extent permitted by this ESA,
may be amended from time to time by mutual agreement of both parties.
21.6 Further Documents The parties shall execute and deliver all documents and perform
all further acts that may be reasonably necessary to effectuate the provisions of this ESA.
21.7 Headings Headings and subtitles used throughout this ESA are for the purpose of
convenience only, and no heading or subtitle shall modify or be sued to interpret the
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto subscribe
their names to this instrument on the date and year first written above.
ESCO OWNER
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