The draft RFP issued by the Army Energy Initiatives Task Force is a significant step in the Army’s plan to develop large-scale renewable energy projects. It presents as much as $7 billion in new opportunities to the alternative energy market and reflects a growing synergy between the defense and energy industries. Here we highlight some of the key provisions in the draft RFP, including some that are unique to contracts with the federal government.
The Draft RFP
The draft RFP was issued by the Army Energy Initiatives Task Force. It contemplates a multiple-award indefinite delivery-indefinite quantity contract under which the Army could purchase up to $7 billion worth of renewable and alternative energy over 10 years—a base period of 3 years with 7 option years. Through competition with the IDIQ contract holders, the Army would issue individual firm-fixed-price task orders to purchase electricity through Power Purchase Agreements based on a fixed rate per unit of energy (e.g. $/kWh). The PPAs would be allocated across four renewable technologies: solar (1.5 billion kWh); wind (9 billion kWh); biomass (19 billion kWh); and geothermal (8 billion kWh).
Depending on the requirements of a particular task order, bidders could be responsible for constructing the energy generating systems and guaranteeing a certain level of renewable energy output by a specific date. Failing to meet the specified date could subject the contractor to liquidated damages for the output shortfall on a price-per-MWh basis.
Maintenance of the energy generation systems would be the contractor’s responsibility, as would achieving certain output performance levels over the course of the PPA. For variable energy production technologies (i.e. solar and wind), contractors would have to maintain performance levels that are in the top 25 percent of the industry in the United States. For continuous energy production technologies (i.e. geothermal and biomass), contractors would be required to provide replacement energy at no cost when their systems fail to meet the minimum production requirements.
To offset the construction and maintenance costs, bidders would be required to take advantage of all available utility incentive programs. The government would retain ownership of any renewable energy credits associated with the energy generated under the task order.
Key government contracting issues
Allocation of renewable energy credits and production guarantees are common provisions in commercial-sector power purchase agreements. But having the federal government as a customer imposes a number of unique obligations and risks.
1. Buy American Act / Trade Agreements Act
The draft RFP would impose restrictions on the source of supplies and products that could be used in constructing, developing, and operating the projects. The RFP includes FAR 52.225-23, for example, which establishes a preference for domestic construction material, U.S.-manufactured construction materials, and U.S.-produced iron or steel. DFARS 252.225-7012, also included in the RFP, contains similar requirements and expresses a preference for certain domestic commodities. If these provisions are included in the final RFP, bidders will need to examine their product supply lines to ensure that they are able to comply with the requirements.
2. Prevailing wage rules and affirmative action compliance requirements
There are a number of labor law and affirmative action requirements included in the draft RFP. Where a task order requires construction, awardees would have to comply with the prevailing wage requirements established under the Davis-Bacon Act (FAR 52.222-6). Service elements of a task order (e.g. operation and maintenance of the energy generation systems) would require compliance with the Service Contract Act of 1965 (FAR 52.222-41), which contains similar requirements to pay prevailing wage rates. Overtime compensation would have to be paid to comply with the Contract Work Hours and Safety Standards Act (FAR 52.222-4).
The draft RFP also includes federal contractor requirements addressing non-discrimination and affirmative action. FAR 52.222-26 prohibits discrimination on the basis of race, color, religion, sex, or national origin in the performance of a task order or contract. It also requires that contractors take affirmative action to ensure that both actual and potential employees are treated equally and without regard to those same characteristics. FAR 52.222-27 applies to construction and contains similar affirmative action requirements. It specifies a series of affirmative action procedures that contractors must implement, including ensuring a work environment free of harassment, intimidation, and coercion, establishing and maintaining a source list of minority and female job applicants, and developing on-the-job training opportunities that expressly include minorities and women.
3. Small business opportunities and restrictions
The AEITF’s draft RFP contemplates restricting competition to small businesses on certain task orders based on the size of the project. Competition on task orders seeking energy production of 4MW or less would be restricted to small businesses only, and the contracting officer would have authority to restrict competition on task orders seeking between 4MW and 12MW, depending on the level of small business interest. Competition for task orders involving 12MW or more would be unrestricted among IDIQ contract holders. Task order awardees would also have to make efforts to utilize small businesses in the performance of a task order (FAR 52.219-8), including submitting and adhering to a small-business subcontracting plan (FAR 52.219-9).
4. Contractor transparency requirements
Contracting with the federal government includes a number of requirements that make contractor information available to the public. The Federal Awardee Performance and Integrity Information System (FAPIIS), which contains reports on contractor default terminations and other information deemed relevant to a contractor’s “responsibility,” is now open to the public. Under FAR 52.204-10, contractors and first-tier subcontractors that meet certain gross revenue thresholds are required to report the names and total compensation of their five most highly paid executives. Contractors can expect AEITF contracts and task orders to include these requirements. We discuss FAPIIS and the executive compensation reporting requirements in an earlier post.
5. Audit rights
For task order PPAs exceeding $700,000, bidders may be required to certify that the cost or pricing data included in their proposals are accurate, complete, and current to the best of the contractor’s knowledge and belief. Under FAR 52.215-2, the government would have the right to examine an awardee’s records to evaluate the accuracy and completeness of the cost or pricing data that the contractor submitted.
6. Termination for convenience
The draft RFP includes the FAR termination-for-convenience clause at FAR 52.249-2. This clause outlines the government’s broad right to terminate the contract, in whole or in part, when doing so is in the government’s interest. Although there are some important restrictions on the government’s ability to terminate a contract for convenience, a proper termination under this clause is not a breach of contract and does not entitle the contractor to recover expectancy damages. Termination for convenience essentially converts a fixed-price contract into a cost-reimbursement contract under which the contractor may recover the costs of performing the completed work, a reasonable profit on that work, and the costs of winding down. A termination settlement proposal must be submitted within one year of the effective date of the termination.