ABB - Sustainable Procurement by Philip Juneau at GIB Summit

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Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014.
Read more about the world leading platform for Sustainable Infrastructure Finance at www.gib-foundation.org.
Next Summit: 27 & 28 May 2015 in Switzerland

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ABB - Sustainable Procurement by Philip Juneau at GIB Summit

  1. 1. Global Infrastructure Basel Summit Sustainable Performance Based Contracts Philip Juneau, ABB Building Automation, 21 May 2014
  2. 2. ABB is a global leader in power and automation… …with leading market positions in main businesses © ABB 2011-09-23 | 2
  3. 3. Sustainability Socio- Economic Eco- Efficiency Socio- Environmental Environmental Stewardship Social Progress Economic Success 1 23  Innovation  Revenue growth  Return on capital employed  Risk Management  Brand value  Margin improvement  Shareholder returns  Energy efficiency  Sustainable products  Clean tech markets  Resource efficiency  Product stewardship  Product Life-cycle management  Emissions  Energy- and resource use  Environmental impacts  Waste releases and spills  Biodiversity  Employment and labor relations  Human rights  Diversity and inclusion  Community involvement  Health & Safety  Job creation  Business ethics  Security- and crisis management  Social investments  Learning & Development  Local economic impacts  Climate change  Access to electricity  Environmental regulations, jurisdiction and claims How to satisfy all stakeholders in a PBC? Sustainable Procurement What factors are driving our ABB offerings © ABB 2011-09-23 | 3
  4. 4. What are PBC’s?  Performance Based Contracting is a results-oriented contracting method that focuses on the outputs, quality, or outcomes that may tie at least a portion of a contractor’s payment, contract extensions, or contract renewals to the achievement of specific, measurable performance standards and requirements. These contracts may include both monetary and non- monetary incentives/disincentives.  The purpose of performance based contracting is to obtain overall better value, better performance, lower costs, or both. Performance based contracting requires output/outcome-based specifications and procedures that require the contractor to devise the most innovative, efficient, and effective way to perform the work. Because of this, it is critical that a capable and competent contractor be chosen.  Therefore, past performance evaluations and partnering are essential elements to consider when selecting a contractor. © ABB 2011-09-23 | 4 Performance Based Contracting (PBC) Are they a useful tool in achieving sustainable service? Source: Principles and Practices of Public Procurement: PERFORMANCE BASED CONTRACTING (2012)
  5. 5.  Results-oriented for the customer  Contractor payment (return) is based on the achievement of specific, measurable performance standards  Purpose is obtain overall better value, better performance and lower costs  Requires innovative, efficient, and effective ways to perform the work, therefore a capable and competent contractor is mandatory  Past performance and partnering (relationship) are essential elements to consider when selecting a contractor © ABB 2011-09-23 | 5 Performance Based Contracting (PBC) Are they a useful tool in achieving sustainable service? Source: Principles and Practices of Public Procurement: PERFORMANCE BASED CONTRACTING (2012) Sounds too good to be true…what is the experience from the market?
  6. 6. Market Challenges with EPC  Lack of legislative drivers outside of NAM has hindered adoption  EPC is often compared with other forms of Energy Supply Contracting in the market, which causes confusion  EPC is relatively a small part of the entire retrofit/construction market  Traditional public tender/procurement process not conducive to EPC  Customer tendency for competitive bidding of parts, not buying the whole  Misperception of EPC in marketplace (i.e., are the goals of energy efficiency and the customer’s business objectives aligned?)  Perception as ‘lack of value for money’ (i.e., I can do it cheaper via the traditional route)  Lack of trust based on a completely new outsourcing model © ABB 2011-09-23 | 6 Performance Based Contracting Example: Energy Performance Contracting
  7. 7. Must Fulfill  Significant energy and operational costs  Medium/Large building(s) or multiple sites  Lack internal expertise to design & implement solutions  Able to take a medium/long term perspective on asset improvements over the entire lifecycle  Looking to minimize/transfer performance risk  Outsourcing approach and ability to trust Possible Enablers  Lack of transparency of energy usage  Lacking access to capital to finance improvements  Needing to comply with new energy legislation  Green image requiring carbon footprint reduction © ABB 2011-09-23 | 7 Performance Based Contracting Ideal EPC Customer
  8. 8.  Goal setting up-front together with all stakeholders (workshops which set the priorities)  Lifecycle mentality must prevail over first cost  Solution design incorporating: - energy efficiency, - environmental and - social factors, ALL equally represented  Contract promoting a ‘win-win’ situation based on risk/reward mentality and tied to performance measurement  Project implementation with the ‘end goal’ in mind (e.g., latent field conditions impacts more than additional investment costs)  Measurement and Verification (e.g., IPMVP); you can’t manage what you can’t measure  Transparency at all stakeholder levels © ABB 2011-09-23 | 8 Performance Based Contracting How to define, measure and monitor performance
  9. 9. © ABB 28. Mai 2014 | 9

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