3 USAID-SARIIEnergy Program

www.sari-energy.org
r)

Model ESCO Performance

nd Contracts
sil

Bangladesh

0 Nf)XQnT
August 2003
Contents

Section Page

1 Background on Model Contracts ................................................

1.1 Overview of ESCO Services .............................................
1.2 Performance-Based Contracts ...........................................
1.2.1 Guaranteed Savings Contract Structure ........................
1.2.2 Shared Savings Contract Structure ..............................
1.3 Model Contracts ............................................................
1.3.1 Feasibility Agreement .............................................
1.3.2 Energy Services Agreement (ESA) ..............................
2 Model Performance Contracts for Bangladesh...................................

Appendix A :Feasibility Agreement ................................................ A-1

Appendix B :Energy Services Agreement - Short Format ..................... B-1
Appendix C :Energy Services Agreement - Long Format ..................... C-1
Section 1 Backnround on Model Contracts

1.1 Overview of ESCO Services

An energy services company (ESCO) is defined as a company engaged in developing.
installing and financing comprehensive, performance-based projects centered on improl ing
the energy efficiency of facilities owned or operated by commercial, industrial. institutional.
and other types of customers. Projects are performance-based because the ESCO's
compensation, and often project-financing, are meaningfully tied to the amount of energy
actually saved. For this reason, ESCOs are fundamentally different From consulting
engineers specializing in identifying potential efficiency improvements. who are typically
paid a fee for their advice and undertake no risk that their recommendations \till yield results.

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 supenise 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.

1.2 Performance-BasedContracts
There are two common types of Performance-based Contract structures used by ESCOs.
called "Guaranteed Savings" and "Shared Savings", are described briefly belotv.

1.2.1 Guaranteed Savings Contract Structure

The "Guaranteed Savings" structure is an arrangement where the commerciaVidustrial
facility owner ("Host") makes periodic fixed debt service payments to a third party financial
institution ("Lender") in the amount required to repay the ESCO's turnkey project price plus
the Lender's financing costs. Under this approach, the ESCO guarantees the Host that the
project's realized savings will equal all project payments. including debt senice to the
Lender plus any downstream fees to the ESCO for its ongoing M & V and operational and
maintenance services. If the realized savings fall short of the project payments made by the
Host, the ESCO will pay the difference between the realized savings and the project
payments. If the realized savings exceed the project payments, the Host and the ESCO may
share in the excess depending on the risk taken and the extent of services pro~idedby the
ESCO.

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 behveen 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, \\.ill 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") behveen 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.
63 ~ aanr Model ESCO Petfmance Contracts 1-I
Section 1 M q r w n d on Mcdei C o n W

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 senice
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.

1.2.2 Shared Savings Contract Structure

The "Shared Savings" structure refers to an arrangement where the ESCO (as opposed to the
Host) finances the ESCO's turnkey project price and bears the obligation to repay the Lender.
Under a Shared Savings structure, the Host commits under an ESA to pay a percentage (or a
fixed amount) of the project's realized savings to the ESCO. which is an amount sufficient
for the ESCO to cover the debt service payments to the Lender plus any do\~nstrearnfees for
its ongoing M & V and operational and maintenance services. Because the Host has no direct
contractual obligation to repay the Lender, the ESCO not only assumes the Project
performance risk, but also assumes the credit risk of the Host by being obligated to repay the
Lender even if the Customer does not pay the ESCO the achieved project savings. Due to the
increased risk assumed by the ESCO, the Host is typically charged a higher cost for financing
the Project.

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 commerciaVindustrial
customers in the North America also prefer the Guaranteed Savings structure because of the
lower interest costs.

1.3 Model Contracts

The Model Contracts for Commercial/Industrial Customers mereafter called the "Model
Contracts") pertain to the Guaranteed Savings ope of structure described above. The
Guaranteed Savings structure is by far the most predominant one used by ESCOs, and is the
structure most applicable to Bangladesh. The Model Contracts cover the three (3) phases of
the ESCO's relationship with Commercial/Industrial Customers. namely: i) development of
projects, which covers technical and project financing. under the Feasibility Agreement. ii)
construction of projects under the ESA and iii) calculation. measurement and verification of
project savings under project-specific Exhibits attached to the ESA.

1.3.1 Feasibility Agreement

The Feasibility Agreement is an initial agreement that covers the terms and conditions for an
ESCO to develop a paid-from-savings project at the Host's site. and it provides the ESCO an

@Nmr Model ESCO Performance ContrMs 1- 2

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 "h4inimurn
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:

= Estimated savings and costs

Savings calculation methodology
= Comfort and operating standards

-
Financing options and cash flows
Construction price details
Customer and ESCO maintenance responsibilities

The project details in the IGA are incorporated into the implementation contract called an
Energy Services Agreement (ESA).

1.3.2 Energy Services Agreement (ESA)

The Energy Services Agreement ("ESA") is entered into after the Custonler approves the
IGA, and it specifies all of the terms and conditions under which ESCO finances and
implements the project pursuant to the IGA. It covers such things as project financing terms.
construction responsibilities, payment terms, savings calculation methodology. ESCO
performance guarantees, warranties and other key legal terms relative to the responsibilities
of the ESCO and the Customer.

ofvexam Model ESCO Perfmance Conlrads 1- 3

Section 2 Model Performance Contracts for Banaladesh

This report presents model ESCOEE performance contracts. They are intended to be
templates to facilitate the contractual element of ESCO transactions. All parties to ESCOIEE
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 languase
that responds to a specific situation and project.

T h e e model ESCOEE performance contracts are provided, as follows:

Feasibility Agreement for Commercial and Ind~~sfrial Projects. which is an initial

agreement for an ESCO to develop a project concept and investment-grade feasibility
study, and allows the ESCO to recover the development costs if the customer does not
proceed to implement the project with the ESCO.
= Energy Services Agreement (ESA) for Commercial and Indzcsfrial Projecfs (Long Form)
is a detailed model performance contract that included all terms and conditions associated
with the paid-fiom-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
Bangladesh.

~~NWUM Model ESCO Perfwmance Cmtrxts 2- 1

Appendix A FeasibilityAgreement (Cornrnercialllndustrial Projects)

ENERGY SERVICES - FEASIBILITY AGREEMENT

th
This Feasibility Agreement (herein the "Agreement") is made and entered into as of this -
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 detennine 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").

1.0 Feasibility Analysis

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.

1. General Scope

The Scope of Feasibility Analysis would be in two parts-

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.

1.2 Energy Audit (Low Cost Measures)

The focus of the study would be the following energy consuming equipment/systems ([Ire list
of energy consuming equipment/systems ivill vary as per the reqzrirenrents 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

L~N~YUM Model ESCO Performance Contrads A- l

Appendix A Feasibility Agreement (Canmenibfl&trid w s )

Upon completion of the Audit, ESCO will present to OWNER a written report (''Feasibility
Report") which will include at least the following information:

A description of potential low investment energy measures, which ESCO proposes to

implement to achieve Savings;
An estimate of the annual Savings expected from the implementation.

1.3 Investment Grade Audit

The focus of the study under Investment Grade Audit would be the follo\ving
equipment/systems:

The Investment Grade Audit would include -

Description of existing equipment or system to be modified or replaced and the aspect of

its present condition and operation which offers an opportunity for efficiency
improvement;
Description of type and estimated value of Savings estimated to be generated including
the Guarantee Amount;
Description of the current energy use and operating costs to be improved ('-Baseline").
Description of the proposed measurement and verification ("MKtV) services and method
for calculating Savings ("Savings Calculation Method);
Estimate of the Financed Amount to implement the IGA measures;
Description of potential Owner commitments which may be required to permit
implementation of the IGA;
A financial pro-forma after Construction, Completion, including estimated annual
Savings, Owner payments to Lender and ESCO, and the ESCO Guarantee Amount:
An Energy Services Agreement ("ESA) to implement the recommended IGA measures.

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 Termn) (time period to be detern~irzed
by negotiation behveen ESCO and ~lvner')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.

'The time period over which the investment can be paid back from the savings is dependent on the r?pr and size
of project. While most Owners may wish projects requiring relatively lower investments to pqbacl; in 1-3
years, projects involving major process changes and large investments may take longer to repay fmm the
savings generated.

~~NWUM Model ESCO Performancecontrads A- 2

Appendix A Feasibiliw Agreement ( C o m m e r d d n W webs)

2.0 Payments

2.1 Energy Audit (Low-cost Measures)

The plant will pay ESCO X percent of the agreedldemonstrated energy savings calculated
for one year soon after implementation of the measures.

2.2 Investment Grade Audit

Upon receipt by OWNER of the IGA Report, OWNER shall either approve the said IGA
Report ("OWNER'S Approval") within hvo weeks or recommend in writing changes
required for within two weeks. Upon receipt by ESCO of Owner Approval. ESCO \\ill
proceed to facilitate and arrange financing. and get an Energy Senrice 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.
= For implementation of these Investment Grade measures / proposals, an Energy Service
Agreement would be entered between ESCO and OWNER.

3.0 Client Information

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 \\ill share prior
energy audits or studies of the Facilities.

4.0 Confidential Data

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

The time period for which utility bills need to be monitored depend on the ope of ECR?? 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-j6
months may be examined.

C~NHUI~T Model ESCO P e r f m a n e contrads A- 3

 Appmd'x A FeasibilityAgreement ( C o m ~FkWSL
l ~
hd

Irl representative who become knowledgeable of this OWNER Information form ESCO are
bound by the same obligations of confidentiality as ESCO under this ESA.

U 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.

mi
....................................... .......................................
Name Date Name Date
ad

C? N ~ X U M Model ESCO PeifocmanceContrxls A- 4

Appendix B Energy Services Agreement - Short Format
(Commercialllndustrial)

ENERGY SERVICES AGREEMENT

This Energy Services Agreement ("ESA") is made and entered into as of this --day of -
2001, by and between (iiOR.ner>') and
("ESCO). Both Owner and ESCO shall collectively be referred
to as "Parties."

ARTICLE 1 - RECITALS

1.1 WHEREAS, ESCO is in the business of identifying, developing, engineering,

procuring, constructing, monitoring and arranging financing for certain improvements known
as energy cost reduction measures ("ECRMs"), which result in energy, water and/or
operating cost reductions and may also result in production efficiencies ("Savings"):

1.2 WHEREAS, Owner engaged ESCO to develop Savings at its facility by si-gning 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 EChMs described in
the Investment Grade Audit (IGA) Report dated ,2001 and attached to this a-errernent
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.

ARTICLE 2 - IMPLEMENTATION PROCESS

2.1 Implementation Process The Program shall be implemented in the follo\~ing

manner subject 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.

Z~N~ffM Model ESCO PerformanceContrads a1

Appendix B Energy Sewicz AgreemenlShorl Format ( f & u n e r d l l q

-
ARTICLE 3 CONSTRUCTION

ESCO shall construct the ECRMs in the IGA commencing from 2001 and
completing by 2001 ("Construction Period).

3.1 ESCO Oblieations During the Construction Period, ESCO shall provide the
following:

All necessary services relating to engineering, procurement, construction, startup and

commissioning of the ECRMs, and other necessary support in accordance ~ 5 t hagreed
upon budgets as defined in the IGA;
Reasonable instruction and training to the person or persons designated by Owner in the
proper operation and maintenance of each ECRM in accordance with budgets agreed to in
the IGA.
3.2 Owner Obligations During the Construction Period, Owner shall:

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 follo\~ing
construction;
= Exercise reasonable due diligence and insurance to protect the implemented ECkVs from
harm, theft or misuse.

3.3 Construction Completion Consequent to completion of construction of ail the

ECRMs in accordance with the terms of the IGA and the Specifications provided by ESCO.
("Construction Completion"), Owner and ESCO have now mutually agreed upon an
Effective Date for the operation of ESA.

ARTICLE 4 - ESCO OPERATING SERVICES

Following Construction Completion of each ECRM, ESCO shall provide the follo\ving
services to the Owner:

4.1 Savings Guarantee

A. Guarantee Period

ESCO shall provide a Savings Guarantee for the total of ECILVs implemented under this
ESA for years from Effective Date ("Guarantee Period").

67fVewfr Model ESCO Perfmane Contrads E- 2

Appendix B Enwqy S e ~ c AgreementSM
e Fcuma! ( C a m n w S i I M a l )

B. Guarantee Amount

During the Guarantee Period, ESCO guarantees that Owner shall realize Savings in
accordance with Article 2.1 of the Feasibility Agreement IEnergv. Water and \\taste
Recoverv 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 Pro-gam 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 s ate^.. 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 sen-ices in
accordance with the frequency specified in Exhibit-D.

ARTICLE 5 - OWNER OPERATING RESPONSIBILITlES

5.1 Operating Hours Owner shall abide by the operating hours specified in Pro_- 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 Enerw & Water Cost of electrical energy is taken as R s . per k\Vh and
cost of water is taken as R s . 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 o f
orher fuels and utilities, as applicable).

'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.

Z.?N~KU~ Model ESCO Performance Conlrads 83

 Appendix B Enetgy Setvice AgmemenlShwt Format (Cmwr&#ndosM~

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 si-&ticant
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 notifv 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. Onner
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 energ-
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, modi@. remove. adjust.
alter or change in any material way the ECRMs, or any part thereof, after Conshuction
Completion and during the term of this ESA, without prior wwitten direction or approval of
ESCO, except in the event of an occurrence reasonably deemed by Owner or ESCO to
constitute a bona fide emergency.

ARTICLE - 6 PAYMENT TERMS

6.1 Owner Pavments to ESCO Owner agrees to pay ESCO a Contingent Senice 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 Sewice 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 hvo days after each quarter fiom 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 complesily ofthe facilily.
This is generally a negotiated time period behveen the ESCO and Owner.

67NeXtlm' Model ESCO Performance Cmtrads E4

Appendix B Enetgy Service AgreementShort F m a t ( C h b m c S B ~ ~ a R

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, O m e r shall be deemed to
have approved the calculations and estimates.

6.3 Pavment 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

ARTICLE 8 - OTHER TERMS AND CONDITIONS

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
andlor 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 senled 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.

69 N W U ~ T Model ESCO PerformanceConlrads 5 5

Appendix B Energy Service AgreemenlShwt Fwmal (GmmwdflrwA~~aiaf)

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 C o m ~ l e t eAgreement This ESA, together with all Schedules and Exhibits
incorporated herein andlor attached hereto, shall constitute the entire ESA behveen 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 test of
any section.

~~IIT~UI~T Model ESCO Performance con~ads B6

Appendix B Energy Service Agreemenl3ho-I Format (Cixnnw5dll~)

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.

0 ffem?r Model ESCO PerformanceContracts 87

Appendix C ESA- Long Format (CommerciaUlndustriaI)

ENERGY SERVICES AGREEMENT

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 behveen Onner and ESCO, dated
................... , 2001.("FA). The location of the facilities ("Facilities") in which the
ECRMs will be installed and a detailed description of the ECFCMs 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 andlor 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.

ARTICLE 2 - IMPLEMENTATION PROCESS

2.1 The Project shall be implemented by ESCO in the following two (2) phases :

Close Project financing pursuant to Article 3, and

Install the Project pursuant to Article 4.

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 fiunish):
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 e n e r a 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.

off@am Model ESCO Performance Conlrads C1

Appendix C ES4lm-g Fwmat (Commrdainn&sW)

Owner shall cooperate with ESCO in optimizing the Savings achieved from the Project and
minimizing implementation costs throughout the term of the ESA. Osner 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 interview wwith
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 Owwner 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 hrnish information expeditiously so as to avoid unreasonable
delay in the Project services or work of ESCO.

ARTICLE 3 - PROJECT FINANCING

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 hereafier
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.

4.1 ESCO Obli~ationsDuring the Construction Period, ESCO shall:

provide all necessary engineering, procurement, construction, startup and commissioning

of the ECRMs, including the negotiation, award and management of all subcontracts:
promptly inform Owner of matters which may affect ESCO or Owner's obligations under
this ESA, or which impact the safe operation of the Facilities;
coordinate the production of detailed engineering designs and specifications
("Engineering Designs") that conform to the intent of the FA;
coordinate the Construction schedule of the ECRMs with Owner's personnel and
schedule work to minimize disruption;
assist Owner in obtaining all applicable licenses, permits and approvals reasonablv
necessary for construction of the ECRMs;
use its best efforts to supply commercially recognized manufactured equipment
compatible with Owner's existing plant so as to keep spare parts, etc., to a minimum:
where applicable, obtain standard warranties from installers and manufacturers on
equipment, materials and workmanship;
. -
accept delivew of equi~ment and materials at the Facilities:
provide reasonable instruction and training to the person or persons designated by Ow\ner
in the proper operation and maintenance of each ECRM, and
provide to Owner all necessary documentation reasonably required by Owner regarding
the proper operation and maintenance of each ECRM.

f l N m Model ESCO PerformanceCmiracis C2

Appendix C ESAlong Famat (Commmi&lMd)

4.2 Owner Obligations During the Construction Period, Owner shall :

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 a.~.~ l i c a blaws. -
l e including.
without limitation, those regarding the presentation of documents proving payment of tayes
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 esist behveen
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 Certificate of Substantial Cornvietion and Acceptance

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

bT Nwam Model ESCO PerformanceContrads C3

 Appendix C ESAlong Fomnat

Certificate of Substantial Completion and Acceptance (hereinafter knoxtn as

"COMPLETION"). or 2) if good cause exists for doing so. notify ESCO in lwihng the
Substantial Completion has not occurred. If Substantial Completion has not occurred
for good cause, ESCO shall promptly take such corrective action, if any. within thirty
(30) days of receipt of such notice, as shall cause Substantial Completion to occur and
shall issue to the Owner another written Notice of Substantial Completion. The Owner
shall have ten (10) days after receipt of such second written Notice of Substantial
Completion to respond, as set forth above, that either the Work is accepted or that
Substantial Completion has not been achieved. Such procedure shall be repeated as
necessary until the Owner issues a written Certificate of Substantial Completion and
acceptance, which Certificate shall not be withheld unreasonably. If, because of
ESCO's material failure, the Owner is unable to issue such certiticate nithin six (6)
months of the initial submittal of the Notice of Substantial Completion. such failure
shall be considered a default under this Agreement. In that event the Obi-ner may
enforce any or all of its rights as set forth in Ariticle 12.2) hereof. In the event of a
disagreement over whether the material failure was due to ESCO's fault, the Onner and
ESCO agree to submit the alleged failures or breaches of ESCO to binding arbitration
pursuant to Article 15.2 herein.

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 h m l e s s from and
against any and all claims, losses, delays, liabilities, costs, expenses andfor 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.

-
ARTICLE 5 ESA ADJUSTMENT

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;

fl~eua~ Model ESCO Performance~onlrads cz

Appendix C ESA4ong F m a l ( C ? a m W & i l W @

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 ECRiM
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 xvhich 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 Pro-mamming 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:

wrongful act, omission or breach of ESA by Owner, or

= delays for which ESCO is entitled to an extension of time as described in Exhibit C, or
= deletion or substantial modification of an ECRM by Owner. or
changes or damage to the Facilities, or to Owner's equipment and systems or their
operation, which impact the ECRMs' performance or ESCO' cost to obtain the original
performance relative to the IGA

Such circumstances shall be addressed in the following manner:

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.

69lww.7fK Model ESCO Perfmane Conlrads C5

Appendix C ESA-!.cilg Fwmat7
1
-(

ARTICLE 6 - ESCO SAVINGS GUARANTEE

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 Onner
shall rcalize an amount of Savings according to the Savings Calculation Method in Exhibit D
at least equal to the Loan payments required to repay the~constructionCosts of the E C M s
(Guarantee Amount). This Guarantee Amount shall apply to all ECRiis 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. O\\ner 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.

ARTICLE 7 - OWNER OPERATING RESPONSIBILITIES

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 afier the occurrence
happened or was discovered to have happened.

7.2 Reportine of Malfunction and Emergencies Owner shall use its best efforts to
immediately notify ESCO or its representative of the occurrence of any si-pificant
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 Onner notifies EPS of any said
material malfunction within twenty-four (24) hours of Owner's actual knowledge of
occurrence.

7.3 Maintenance Responsibilities Except as othenvise specifically set forth in the

F.A.,Owner shall maintain the ECRMs in a manner which will assure achievement of the
Savings as set for the in the Feasibility Report. In addition, Owner shall maintain the
Facilities in good repair 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

o N m Model ESCO Performance Contrads C, 6

Appendix C ESAlong Format ( ~ i l n d M a t ~

Facilities. If Owner fails to materially perform its maintenance responsibilities as defined in

the IGA 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 its
cost to perform such work plus its normal overhead and profit markup, and any lost Savings
shall be added to actual calculated Savings under this ESA. Owner shall not move. modifi.
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 nritten direction or
approval of ESCO, except in the event of an occurrence reasonably deemed by O\\ner or
ESCO to constitute a bona fide emergency.

ARTICLE 8 - PAYMENT TERMS

8.1 Lender Pavments 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 Pavments to ESCO Upon Substantial Completion of the EChLf, Owner
agrees to pay ESCO or its assignee the Loan Payments and the Senrice Fees desigated 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 nith
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 O\\ner a monthly
invoice which shall document the amount of Savings achieved and the Contingent Sen-ice
fees due ESCO. If Owner disagrees with the invoiced amount. it shall so noti@ ESCO \tithin
(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 disa-meement. 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. Noh\ithstanding
such disagreement, Owner shall pay ESCO any agreed amount due.

8.3.3 If ESCO has not received from Owner the necessay 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 O\\ner for
the Service Fee amounts expected to be received pursuant to each IGA. and O\\ner 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.

67NeZmT ~ o d FSCO
p ~ pd-mrp CMI~*S r- 7
Appendix C ESA4ong F m m ( ~ t i * l ~ ~ i

8.3.4 All calculations and estimates by ESCO shall follow generally accepted engineering
and accounting principles, and shall be submitted in nnting 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 (3O)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 (1O)days' written notice. suspend further work and senices
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 afier 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 Ownenhip of Proprietaw Property Rights Owner shall not, by virtue of this ES.4.
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 soft\-are
and documents, prepared through the efforts of ESCO' staff and Subcontractors remain the
property of ESCO, and shall not be disclosed or used by O\*ner to a third party. \\ithout the
written consent of ESCO. The drawings, CAD files and specifications shall become the
property of the Owner upon Construction Completion.

ARTICLE 10 - FORCE MAJEURE

In addition to the Parties' rights and remedies in this ESA . if ESCO or h n e r 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. esplosion. \\ar.
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

67 Nexa!r Model ESCO Perfwmance Contrads C8

Appendix C ESAlong Famat (Comm%&lod&iai)

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.

11.2 Owner Insurance Upon Construction Completion, O\+ner agrees to provide

sufficient "all risk" property insurance coverage on the Improvements to repair or replace
them in total if destroyed, stolen or damaged until expiration of the Guarantee Period. ESCO
shall be named as an additional insured on such "all risk" insurance.

ARTICLE 12 - DEFAULT BY ESCO

12.1 Events Events which shall be deemed irrefutably to be a default by ESCO:

ESCO is declared bankrupt and is not a debtor in possession; makes a \~oluntary

assignment for the Benefit of creditors; becomes insolvent; proceeds to voluntary
liquidation, or is dissolved;
Owner has notified ESCO in writing of a material failure by ESCO to perform or comply
with the terms and conditions of this ESA; provided that such failure shall not be a default
if it is corrected or covered by ESCO within thirty (30) days after written notice has been
given to ESCo by Owner demanding that such failure to perform be cured. or if a cure
cannot be effected within thirty (3O)days, if ESCO is diligently pursuing a cure:
EPS has knowingly furnished a materially false or materially misleading representation or
warranty to Owner.

12.2 Remedies In the event of Default by ESCO pursuant to Article 12.1. Ox\-ner may.
without a waiver of any other remedies which exist in law or equity, exercise an?. 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. andor for the
recovery of amounts due and unpaid andlor 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 O\iner's business. The Party \xho
shall prevail in any such proceeding shall be entitled to recover all costs and expense

67 nmam Model ESCO Perfcimance Contrads C9

Appendix C ESA- Famal ( C a m & & i ~ a i )

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. Nohvithstanding 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.

ARTICLE 13 - DEFAULT BY OWNER

13.1 Events which shall be deemed irrefutably to be a default by Owner :

Owner is declared bankrupt and is not a debtor is possession; makes a voluntary

assignment for the Benefit of creditors; becomes insolvent; proceeds to voluntaq
liquidation, or is dissolved;
Owner options, agrees to sell, sells loans or otherwise conveys its obligations under this
ESA without the written consent of ESCO, such consent not being unreasonably
withheld;
= Owner has knowingly furnished a materially false or materially misleading representation
or warranty to ESCO;
ESCO or the Lender is unable to finance or continue financing the Project because of
actions or omissions of Owner or Owner's financial inability or lack of h d s ;
ESCO has notified Owner in writing of a failure by Owner to pay ESCO. its assignee or
the Lender any sums due when due. or to authorize the Lender to pay ESCO or its
designee any Progress Payments due pursuant to Article 8.1, or any default by Onner
under the term of the Loan;
any Article 6 deletion or change to an Improvement which causes the Improvement or the
total Project to be no longer implemented under the terms of the ESA;
ESCO has notified Owner in writing of a material failure by Owner to perform or comply
with the terms and conditions of this ESA, provided that such failure shall not be a default
if it is corrected or cured by Owner within thirty (30) days after written notice has been
given to Owner demanding that such failure to perform be cured.

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. a d o r for the
recovery of amounts due and unpaid andlor for actual damages incurred. The Party \vho 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 othenvise permitted in this ESA.

13.2.1 Development Phase Prior to Closing of Project financing. ESCO may require O ~ n e r
to pay the termination fees in FA plus all incurred additional costs from the Effective Date of

RNeMlnT Model ESCO Performance~ontrxts c 10

Appendix C ESAlong Formal (CbmmxialiiM&]

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 Ouner 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 Pavment 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.

13.2.5 Confidentiality Notwithstanding anything contained herein, it is clearly agreed and

understood by parties, that, in the event of any breach of contract related to the confidentiality
by the Owner, ESCO, in addition to any other available rights, shall have the right to obtain
specific performance by the Owner under injunctive relief. It being understood that any other
remedy like liquidity damages etc. shall not be adequate relief available to ESCO under these
circumstances.

ARTICLE 14 - TERMINATION

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 fiuther palment
obligations to ESCO and ESCO shall have no fiuther 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 Bv Owner

14.2.1 Post Construction Period Subsequent to Completion, Onner 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.

L~~WUM Model ESCO Performance Contrxts c 11

Appendix C ESA-Long Famat (~~

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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 nith 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 wvriting.
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 Owwer'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 ECRbls
developed/implemented in the ESA.

fiffexam Model ESCO Performance Contrads C- 17

Appendix C ~ ~ n - ~ omat
fig ( ~ 2 1 8 ~ 1

17.2 Bv 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 sewices it is required
to perform in this ESA without the express prior written approval of Otvner, said consent not
to be unreasonably withheld. ESCO shall notify Owner in writing of any assi-ments of
payments, and except for assignment to Lender, Cient shall either approve or noti@ 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 anomeys' fees. arising out
of connected with, or resulting from sole negligence or willful misconduct of that pam's
employees or agents. However, neither party shall indemnify the other against claims.
damages, expenses, or liabilities resulting from alleged, claimed or concurrent negli,uence 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 \\ith 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 notifv 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 o\\n cost and
expense with counsel of its own selection.

ARTICLE 19 - CONFIDENTAL DATA

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 andlor 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 mark

L ~ M U ~ Model ESCO Pedmance conwas c 13

Appendix C ESA- F m (c,cmwmlndumi21)

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.

ARTICLE 20 - REPRESENTATIONS O F BOTH PARTIES

20.1 General Each party represents to the other that:

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.

20.2 Additional Owner Re~resentations Owner hereby warrants, represents. and

promises that it:
has sufficient authority or title to the Facilities to permit ESCO to implement the Project
without incurring liability to any party;
intends to continue to use the Facilities in a manner substantially similar to its present use.
and to same extent for the duration of this ESA, or has advised ESCO otherwise:
has not withheld any important information from ESCO which might affect the
implementation of the Project or ESCO' obligations under this ESA, and has not and shall
not enter into an agreement with another party during the term of this ESA wvhich might
duplicate or affect the services to be provided under this ESA:
to the best of its knowledge and ability, has provided or shall provide to ESCO all
applicable records reasonably requested by ESCO in a timely manner, and the
information set forth therein is, shall be. true and accurate in all material respects;
to the best of its knowledge and ability, has provided or shall provide to ESCO all
applicable records reasonably requested by EPS in a timely manner, and the information
set forth therein is. shall be. true and accurate in all material respects;
= shall promptly notify ESCO of any events or circumstances which could materially affect
the Project Costs or Savings, or could otherwise affect EPS' services and obligations
under this ESA;
= shall not disclose any confidential information obtained by reason of this Project. nor
shall it use any such information for any purpose without the mrinen consent of ESCO.

67 /warn Model ESCO Perfmance Canha3s C

, 14
Appendix C ESA4ong F m a t (GmmizAiindusbid~

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.

ARTICLE 21 - OTHER TERMS AND CONDITIONS

21.1 A~pticableLaw Shall be subjected to the jurisdiction of ... ..... .........

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 andlor attached hereto, shall constitute the entire ESA behveen 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 Headines 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

0ffeY&lm Model ESCO PerformanceCcntrads Cf5

Appendix C ESA4ocg Famat (Cammenia!lM)

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 and year first written above.

ESCO OWNER

Name ...................................... Name ...........................

Address ................................... Address ........................

.................................. ........................
.................................. ........................

By: ..................................... By: .............................

Date: ..................................... Date: ............................