The Immediate Environmental Impact Potential of Performance Contracting

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By Rex Hamre

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It costs money to save the planet. Aside from direct behavioral changes like recycling, sustainability improvements can be costly. Then again, so is energy. Considering the energy and water costs that can be saved from building operations budgets over time, sustainability initiatives are a wise investment if you know your likely return, and understand the opportunities for funding those initiatives.

Using performance contracting as a source of funding energy and water improvements involves an initial energy auditing effort that is key to understanding current performance against any future savings. As the completed project realizes energy savings, the contractor recovers their costs out of what the building operator would normally have paid to the utility companies at the measured performance prior to the retrofits or renovation. After a set period of time, often 5-10 years, the contractor is paid off and the owner enjoys the full financial benefit of the savings.

There are challenges with performance contracting: it is not always the most cost-effective option to fund projects, there can be layers of fees that eat into the real efficiency returns of the approved projects, and the contracts can be complicated and cumbersome. Still, performance contracting offers a unique application of efficiency savings to fund valuable projects.

This is a simple introduction; there are several different contracting configurations with different levels of complexity, but having a strategy like performance contracting at your fingertips is powerful. If you believe in sustainability and the triple bottom line of social impact, financial returns and environmental conservation, performance contracting can accelerate returns on all three. 

Rex Hamre is a Sustainability Director of the Southeast Region with JLL’s Project and Development Services Group. He is focused on leveraging the bottom-line benefits of sustainability initiatives to achieve positive environmental impact.

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