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Highlights

ESPCs finance energy-saving capital improvements, such as lighting retrofits for federal facilities, without the government incurring the full cost up front. Partnerships tap the capital and expertise of the private sector to develop real property. This report describes (1) what specific attributes of ESPCs and partnerships contributed to budget scoring decisions, (2) the costs of financing through ESPCs compared to the costs of financing via timely, full, and up-front appropriations, and (3) how ESPCs and partnerships are monitored. Using case studies, GAO reviewed GSA and Navy ESPCs and DOE and VA partnerships.

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Recommendations

Matter for Congressional Consideration

Matter Status Comments
Given the competing pressures faced by Congress to support energy saving investments while at the same time seeking to ensure budgetary transparency of full program costs, Congress may wish to consider requiring agencies that use ESPCs to present Congress with an annual analysis comparing the total contract cycle costs of ESPCs entered into during the fiscal year with estimated up-front funding costs for the same ECMs. Congress could use this information in evaluating whether to further extend ESPC authority beyond its current expiration date.
Closed - Not Implemented
Congress has not taken action on this recommendation. However, GAO is currently conducting additional work and will assess whether the recommendation is still necessary.

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Management and Budget 1. The Director of OMB should instruct agencies that use ESPCs to report to OMB and to their committees of jurisdiction an annual analysis comparing the total contract cycle costs of ESPCs entered into during the fiscal year with estimated up-front funding costs for the same ECMs. Congress could use this information in evaluating whether to further extend ESPC authority beyond its current expiration date.
Closed - Not Implemented
As of 2/22/08, OMB has elected not to require such an analysis.
Office of Management and Budget 2. The Director of OMB should work with the scorekeepers to develop a scorekeeping rule for the acquisition of capital assets to ensure that the budget reflects the full commitment of the government for partnerships, considering the substance of all underlying agreements, when third-party financing is employed.
Closed - Implemented
FY 2005 Changes to OMB Circular A-11 guidance did tighten scorekeeping rules to help ensure that the full cost of partnerships were reflected in the budget, considering the underlying agreements. Also, in response to our recommendations, OMB changed criteria in the 2006 A-11 guidance about operating leases to ensure that the total costs of the underlying transaction, not just those immediately applied to the government, are considered.
Department of the Navy 3. The Secretaries of Energy, VA, and the Navy and the GSA Administrator should perform business case analyses and ensure that the full range of funding alternatives, including the technical feasibility of useful segments, are analyzed when making capital financing decisions.
Closed - Not Implemented
As of February 2008, DOD has not taken any action to implement GAO's recommendation. Moreover, in comments on GAO's draft report and again in a subsequent letter to GAO, the Deputy Under Secretary of Defense (Installations and Environment) wrote that a business case analysis suggested by the report would only translate to an increased administrative cost to the Department in the absence of a viable option to directly finance energy conservation projects.
Department of Energy 4. The Secretaries of Energy, VA, and the Navy and the GSA Administrator should perform business case analyses and ensure that the full range of funding alternatives, including the technical feasibility of useful segments, are analyzed when making capital financing decisions.
Closed - Implemented
As recommended, on June 13, 2005, the Deputy Secretary of Energy issued interim guidance requiring a business case analysis for proposed financing arrangements with third-party financing and lease arrangements valued above $5 million. In comments on our report, DOE stated that the new policy, which it had started drafting, would put DOE in compliance with GAO's recommendation.
Department of Veterans Affairs 5. The Secretaries of Energy, VA, and the Navy and the GSA Administrator should perform business case analyses and ensure that the full range of funding alternatives, including the technical feasibility of useful segments, are analyzed when making capital financing decisions.
Closed - Implemented
In fiscal year 2006, VA issued a Capital Investment Methodology Guide that emphasized the formulation phase, as well as the planning and acquisition applications. In this Guide, approval thresholds were included covering enhanced-use leases. Decision criteria for capital investment specifically included analyses of financial priorities such as alternatives identified, cost effectiveness, savings and cost avoidance, and risk.
General Services Administration 6. The Secretaries of Energy, VA, and the Navy and the GSA Administrator should perform business case analyses and ensure that the full range of funding alternatives, including the technical feasibility of useful segments, are analyzed when making capital financing decisions.
Closed - Implemented
In a May 12, 2005, letter to the Comptroller General, the GSA Administrator wrote that, in response to GAO's recommendation, GSA will develop a pro forma business case analysis for ESPCs similar to that used for projects using appropriated funds. In addition, GSA has promulgated supplemental internal procedures to be followed when entering into an ESPC. The procedures require the performance of a life cycle cost analysis as part of the energy savings performance contracts (ESPC) evaluation process.

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