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NASA OIG: NASA's Management of Energy Savings Contracts

Status Report From: NASA Office of Inspector General
Posted: Monday, April 8, 2013

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We found that Johnson mismanaged its $42.7 million energy contract. Specifically, Johnson officials did not require Honeywell to submit annual savings verification reports and accepted a flawed report for the first year, did not consider the effect of renovations to or demolition of facilities on the guaranteed savings rate, and added work to the contract without ensuring that energy savings would cover the additional costs. Based on our interviews and document review, it was apparent that Johnson contracting officials did not effectively administer the energy contract. Moreover, neither Johnson nor NASA had developed sufficient guidance or an effective training program regarding administration of energy contracts. As a result, Johnson may have overpaid Honeywell because it could not verify that the conservation measures installed under the contract resulted in the guaranteed $2 million in annual energy savings.

To avoid similar problems at other Centers, the Agency should improve its guidance and training. For example, although Ames appears to be effectively managing its energy contracts, it has not yet faced the situation of needing to adjust the contracts to account for facility renovation or demolition. In addition, because the energy contracts at the Jet Propulsion Laboratory and Wallops Flight Facility are in their first year of performance, issuance of improved guidance and training could help managers there avoid future problems.

Poor Verification Reporting Leads to Mismanagement of Energy Contracts at Johnson. Johnson did not require annual savings verification reports and the sole verification report submitted was flawed. After receiving the initial verification report in 2001 following installation of the conservation measures, Johnson officials did not require Honeywell to submit annual reports verifying that the measures continued to generate the guaranteed savings. Nevertheless, Johnson officials accepted Honeywell's claim that the approximately $2 million of guaranteed energy savings had been achieved each year. In addition, we found that Honeywell's initial report contained mathematical errors and unsupported data that resulted in an overstatement of energy savings. Since 2000, Johnson has paid Honeywell more than $24 million for guaranteed energy savings and is scheduled to pay the company an additional $18.7 million over the next 10 years.

In the absence of reliable and regular verification reports, Johnson managers cannot ensure that the conservation measures Honeywell installed are performing as promised or that the Center is not overpaying the energy company.

Johnson Did Not Adjust the Contract for Changed Circumstances that Affected Energy Savings Generated by Conservation Measures. Since 2008, Johnson has renovated three buildings and demolished a fourth, all of which contained conservation equipment installed by Honeywell. The renovations included the complete removal of the interior finishes and systems as well as the exterior windows and walls. Accordingly, the conservation measures Honeywell installed in these buildings are no longer providing energy savings. However, Johnson has not modified the contract to reflect this fact.

The Johnson contracting officer and contracting officer's representative both informed us that they were unaware of any guidance on adjusting the contract for the renovations and demolition and did not seek assistance at the Center or NASA Headquarters to address this issue. We confirmed that NASA's current energy savings performance contracting guidance does not address adjusting energy contracts to reflect building renovations and demolitions. In addition, NASA's facility project guidance does not address the issue of how to consider the impact on installed guaranteed energy saving measures when calculating a building's renovation or demolition costs.

Johnson Failed to Incorporate Cost Savings Measures to the Contract Modifications for Additional Work. Work performed under an energy contract must be funded by the energy savings it generates. Contrary to this requirement, between 1999 and 2008, Johnson negotiated 26 standalone modifications worth $2.9 million to Honeywell's energy contract without incorporating required cost savings or verification methods designed to ensure that Johnson would not pay more for the work than the energy savings generated. In 2008, the Johnson contracting officer at the time recognized that these modifications were inappropriate and awarded Honeywell a separate five-year indefinite-delivery/indefinite-quantity contract, currently valued at $12.5 million. However, we found that NASA lacked guidance on this issue.

Other Matters of Interest. During our review, we found that Johnson overstated the value of its energy contract with Honeywell by more than $730,000. We also found that by not taking into consideration the possible discrepancy regarding the guaranteed savings rate discussed earlier, Johnson may owe Honeywell more than $331,000 as a result of inaccurate monthly invoicing.

Conclusion. The guarantee of a specified level of cost savings is at the heart of an energy contract. Johnson officials failed to ensure that the conservation modifications made to its facilities justify the approximately $2 million annual payment made to Honeywell since 2001. In our judgment, without additional measures to improve management and oversight of these contracts, it will be difficult for NASA Centers to ensure that payments do not exceed guaranteed energy savings.

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