performance-based · undertaking both new construction and energy-efficient retrofitting is...

Performance-based procurement and contract model

Deliverable 3.3 – Final for submission

Deliverable Report: - Proficient D3.3 – Performance-based procurement and contract model-[Public]

Final for submission, issue date on 31.08.2015

PROFICIENT D3.3 PERFORMANCE-BASED PROCUREMENT AND CONTRACT MODEL 2

Issue Date 31.08.2015 Produced by STU, TNO, ENR, IRS, SOL Main author Esra Bektas Co-authors Benigna Boza-Kiss, Enrique Grosser-Lagos, Kinga Horvath, Klaus Luig. Jan Maskell, Jeroen Brouwer, Otto

Villatoro and Vaclav Vimmr Version: Final Reviewed by Ton Damen (DEMO), Javier Royo Abances (SOLINTEL) Approved by Frans Koene (Coordinator) Dissemination Public

Colophon

Copyright © 2015 by Proficient consortium

Use of any knowledge, information or data contained in this document shall be at the user's sole risk. Neither the PROFICIENT Consortium nor any of its members, their officers, employees or agents accept shall be liable or responsible, in negligence or otherwise, for any loss, damage or expense whatever sustained by any person as a result of the use, in any manner or form, of any knowledge, information or data contained in this document, or due to any inaccuracy, omission or error therein contained. If you notice information in this publication that you believe should be corrected or updated, please contact us. We shall try to remedy the problem.

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The Proficient project is co-financed by the European Commission under the seventh research framework programme FP7-2012-NMP-ENV-ENERGY-ICT-EeB with contract No.: 312219. The information in this publication does not necessarily represent the view of the European Commission. The European Commission shall not in any way be liable or responsible for the use of any such knowledge, information or data, or of the consequences thereof.

Performance-based procurement and contract model


History of the document Version Date approved Brief description

V0.1 06.2013 The draft version of C1, and C2.

V0.2 09.2013 The draft version of C1, C2 and ESCO review

V0.3 07.2014 C1, C2, C3, and expectations from C4/5/6/7

V1.0 31.08.2014 Draft sent to PTA Officer

V1.1 15.01.2015 Draft incorporated Project Coordinator’s comments

V1.2 08/02/2015 Draft incorporated Project Coordinator’s comments,

and updated tasks to each partner.

V1.3 08.02.2015

Draft added case study sections (from LCH and

ENR) and TNO reviewed the case studies added

comments to be handled by the partners for overall

consistency. TNO worked out with the comments of

SOL on section 2.5.

V1.4 22.06.2015 ENR and SOL contributions are added.

V1.5 23.07.2015

STU-k, IRS, TNO have fitted latest contributions,

last list of requirements for finalizing send out

(before review)

Final Draft 27.07.2015 STU-k – overall revision/ Check TNO

Final for

Submission 28.08.2015

Contributions and improvements after comments of

reviewers, checked by TNO

Final 31.08.2015 Submission to Participant Portal


Publishable executive summary The aim of the Proficient project funded under the FP7 programme ‘Energy efficient Buildings’ (EeB) is to facilitate and

promote Collective Self-Organised (CSO) housing for energy-efficient neighbourhoods. In CSO housing, a group of

individuals organize themselves within a contractual agreement on a collective level for the realization of their

settlement, either newly built or retrofitted. The target group of the project consists of end users on the demand side of

products and services and SMEs on the supply side.

The nature of CSO projects allows the end users (CSO clients) to be involved in each stage of the project with different

degrees of participation. The involvement can include the exploration of their financial capacity, community forming,

land acquisition, getting in touch with the market parties, procurement and participation in the design activities.

However, the majority of CSO clients are not knowledgeable in the design and construction domain. Yet many CSO

groups tend to use traditional procurement methods to realize their projects, which fragments the overall CSO process,

involves the contractors at a very late stages and does not regulate concurrent design practices among the parties (as

discussed in WP1). Thus, there is a need for suitable procurement strategies which corresponds to both the nature and

values of the CSO clients, which ensures concurrency between SMEs and CSO clients, and utilises early-integration of

the contractor’s insights into the design process.

Procurement needs of CSO clients

The first step was to explore the characteristics of the CSO clients, both for new construction and retrofitting projects.

New construction can involve any form of collective housing project where future owners have a decisive role in

planning, design and construction processes (e.g. co-housing, eco-villages, passive houses, etc.). Retrofitting involves

forms of housing where owner occupation is already present (e.g. in condominiums, cooperatives) and the decisions are

made by the community of owners. Alternatively, retrofitting may involve multiple single family houses organized on

district level for energy efficient interventions. In either case, CSO housing projects require mutual dependency between

the individuals participating. A profile of the main procurement-related characteristics of the CSO client was identified:

CSO clients require participation in the decision and design process but with a changing degree of participation

depending on the party initiating and dominating the project (i.e. bottom-up CSO processes are dominated by the

end users, while top-down CSO processes are initiated and facilitated by SMEs).

CSO clients are private clients; they are – in principle - free to choose any party(ies) to procure without tendering1.

CSO clients organize themselves in different forms (for example, as informal, semi-formal and formal

communities/legal entities), which in turn influence their contracting capacity.

CSO clients often are not knowledgeable about establishing performance requirements for their settlements

(district-level), housing (dwelling-level), building systems (system-level), and materials (material-level). This is

addressed in Deliverable 3.2 End-users's performance requirements and KPI's

CSO clients often have energy performance requirements in their projects, yet these performance ambitions are

not always explicit (e.g. to achieve a certain standard or energy score).

1 In some cases, Public Law Bodies might be involved in the process which might impose certain rules regarding the

procurement.


CSO clients have differing financial capacites and access to financial instruments such as individual bank loans or

collectively gained subsidies and grants.

These main characteristics of the CSO clients not only influence the way their needs are translated into requirements

during the Participatory Design (PD) and Concurrent Design (CD) process described in WP1, but also how these

requirements are reflected in the procurement and contracting strategies. Therefore, an analysis of the existing

contracting forms both for new construction and retrofitting was carried out, identifying the advantages and

disadvantages of each one for the CSO client.

Review of existing contract forms for new construction and retrofitting

Four types of existing contracting forms for new construction were reviewed in this report, varying from the traditional

and fragmented method of “Design-Bid-Build”, to more integrated ones such as “Design & Build” and “Design, Build,

Finance and Maintain” and “Alliance”. These contracting forms were reviewed individually in light of the aforementioned

nature of the CSO clients, their process requirements, and common characteristics of CSO projects. An overall critical

appraisal was carried out in terms of the contracts’ ability to provide CSOs with contracting capacity; inclusion and

definition of performance requirements; direct contract to suppliers; participation in the design and construction process;

accuracy of the cost estimation prior to design; short-time delivery; inclusion of energy efficiency and sustainability

values; early integration of pioneering technologies; ability to provide learning cycles for tendering; and the possibility to

include maintenance.

Regarding the CSO projects dealing with retrofitting of existing residential buildings, contracts for energy services by

means of energy service companies (ESCos) were reviewed. These contracting forms included “Energy Contracting”

(EC), “Energy Supply Contracting” (ESC), “Chauffage” (French for “heating”), “Build-Own-Operate-Transfer” (BOOT),

“Energy Performance Contracting” (EPC), “Shared savings model of EPC”, “Guaranteed savings model of EPC”, and

“Integrated Energy Contract” (IEC). It was found that each of these contracting forms is meant to serve different

purposes and its applicability depends on the different market conditions, the scale of the CSO project and their energy-

related goals. Their position on a scale from simple to advanced is given in the figure below.

A compilation of the comparative advantages and disadvantages of these contracting forms for CSOs projects

undertaking both new construction and energy-efficient retrofitting is summarized in the table below.


CSO procurement strategies

In the next phase, two new potential procurement strategies for CSO projects were laid down based on the appraisal of

advantages and disadvantages of the existing contracting forms. They can be considered as extension contract

modules on existing procurement models, taking the specific needs of CSO projects into account.

The first procurement strategy (based on traditional contracting) starts with hiring an architect to jointly develop the

project with a design which includes specific technical requirements. An ESCO or similar contractor(s) would be hired

independently to advice on the design. This approach will assure a high level of involvement of the CSO client, but it

may also be highly time-consuming. The second procurement strategy (based on integrated contracting) leaves details

and technical requirements up to the market players to fulfil such demands. The CSO client will only have a ‘reference

design’ which sketches the design in broad outline. This approach, although requiring less involvement of the clients,

will result in the market providing an optimal solution. An overview of these two strategies is provided in the table below.

CSO

PR

OJE

CT

Co

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acti

ng

form

Co

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acti

ng

cap

acit

y /

Easy

co

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ng

Incl

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on

& D

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itio

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f p

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rman

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irem

ents

Ab

ility

to

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l wit

h d

ynam

ic r

equ

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ents

Dir

ect

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to

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pp

liers

Par

tici

pat

ion

deg

ree

to d

esig

n p

roce

ss

Par

tici

pat

ion

deg

ree

to c

on

stru

ctio

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roce

ss

Incl

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on

of

mai

nte

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ce

Acc

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cy o

f th

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st e

stim

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n p

rio

r to

des

ign

Acc

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cy o

f th

e co

st e

stim

atio

n p

rio

r to

co

nst

ruct

ion

Co

mp

etit

ive

adva

nta

ge

Co

ncu

rren

cy a

mo

ng

SMEs

Incl

usi

on

En

ergy

eff

icie

ncy

/Su

stai

nab

ility

Val

ues

Sho

rt t

ime

des

ign

del

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y

Sho

rt t

ime

pro

ject

del

iver

y

Lon

g te

rm s

ervi

ce s

up

ply

Earl

y In

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n o

f p

ion

eeri

ng

tech

no

logi

es

Ab

ility

to

pro

vid

e le

arn

ing

cycl

e fo

r te

nd

erin

g

Design-Bid-Build ++ ++ ++ ++ ++ + -- -- - + -- -- -- -- -- -- ++

Design & Build + ++ + + ++ + -- -- + + + - + + - - +

DBFM, DBFMO - - -- -- -- -- ++ ++ ++ ++ ++ + ++ ++ ++ ++ --

Alliance - - -- - + -- --/+ ++ ++ ++ ++ + ++ ++ ++ ++ --

Energy-saving contracting ++ - - + - N/A ++ - + - N/A - + ++ + - -

ESC ++ - - -- N/A N/A + - ++ + N/A - N/A N/A ++ ++ N/A

Chauffage + + - + + N/A + - ++ + + + ++ ++ ++ + ++

BOOT ++ - - - - - + N/A + + + + ++ ++ + + +

EPC + ++ + + + + + + ++ + ++ ++ + + + ++ ++

EPC Shared saving + ++ + + + + ++ + + + ++ ++ - - + + +

EPC Guarantee Savings + ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ + + ++ ++ ++

Integrated + ++ ++ ++ ++ + + + ++ + + ++ + + ++ ++ +

NEW

CO

NST

RU

CTI

ON

RET

RO

FITT

ING


ESCO retrofitting models

Two contracting models for CSO retrofitting projects were developed to meet CSO needs. The first one, called

“Community ESCO model” (COMES) is suitable for district-level energy-efficient refurbishments. The second one is the

“ESCO Energy Saving Guaranteeing model” which is prescribed for refurbishments at building level. The basic element

of the ESCO guaranteeing model is that the ESCO guarantees energy savings, both in short-term and long-term, based

on a baseline and a retrofitting program, for covering the loan payments and O&M (Operation and Maintenance) costs

of the energy systems.

Selection of contract models

Responding to the need of helping CSO housing projects in preparing and organizing their collective procurement

strategies, this deliverable presents the concept of the “Most Economically Advantageous Tender” (MEAT) method of

performance-based procurement. Instead of CSOs procuring their projects based solely on the lowest-priced bidder this

procurement method allows CSOs to reach their goal of achieving the highest “value for money” (VFM).

We also discuss the possibility of CSO clients engaging a “CSO expert coordinator” (CSOEC) through a competitive

tendering process to manage the overall design process, to manage the construction process on behalf of the CSO, to

help the CSO in the tendering process, and in case of ESCO involvement, to help in energy contracting models, and

assist in the selection process of the best procurement method and service provider.

Lessons from case studies

The Lancaster Cohousing project was a rather complex project in which the CSO benefited from active members that

were knowledgeable of the construction industry. This also resulted in clear and specific requirements decided on from

the beginning (e.g. energy-performance standards to be achieved). Once a designing architect was selected, the CSO

Notes

<<Segregated>> <<Segregated>>

Separate contract

for maintenance.

1 or more market

parties are

selected to

construct design

Included in

construction.

(design/bid/build)

Involvement of

client is

l imited to

reference

design. Market

challenged to

provide

optimal

solution.Pro

cure

me

nt

Stra

tegy

Bas

ed

on

Inte

grat

ed

Co

ntr

acti

ng Reference design is developed

with architect.Requirements can be both

functional and technical. Less

detailed then form above, leave

room from optimization by

market parties.

<<Integrated>>

Market party becomes responsible for

construction and maintenance.

E.g. E&C, D&C, or DBM.

Part of contract is performance based (e.g. energy

performance).

Pro

cure

me

nt

Stra

tegy

Bas

ed

on

Trad

itio

nal

Co

ntr

acti

ng

Detailed design is developed together with

architect.

End result is design + technical

requirements.

Use of contractor/ESCO to review design

for energy efficiency, constructability.

Bouwteam (design and build)/building

team

High degree of

involvement on

all topics. Can

require much

time (due to

segregation of

design and

construct).

Phases project life cycle

Phases Defining

requirementsDesign Construction/Build Maintain/operate


succeeded in finding a partnering contractor through an initial tendering process. The contracting process was well

organized, allowing an appointed Client Project Manager to coordinate the project while a Contract Manager dealt with

the contracts and sub-contracts for them. It was found that in adopting this partnering approach, Lancaster Cohousing

achieved a significantly closer working relationship between the contractor and the project team. The partnering

process, prior to commencement of works on site, took nine months. In the meantime all the team members, including

specialists and subcontractors, got to know each other well and knew how each worked and interacted with others.

Finally it can be concluded that the partnering approach to contracting was beneficial, if not fundamentally critical, both

for the CSO and for the SMEs involved, and to the overall success of such complex project.

Case studies in the Czech Republic and Hungary demonstrated the different scopes of energy-retrofitting projects. The

Czech case study consisted only of simple retrofitting of the external envelope of a residential block of flats. This CSO

project successfully achieved their modest energy-related ambitions through traditional contracting forms. As is common

in most retrofitting projects in the Czech Republic, members of a CSO normally have limited professional experience

and restricted time, and therefore they often hire consultants to manage the whole retrofitting process. On the other

hand, more complex energy-refurbishment strategies are carried out in countries such as Hungary where the

government has supported programmes for heating system renovation and district-scale rehabilitation and building

retrofitting through the use of ESCO contracts.

Conclusions

It was concluded that some procurement approaches are better suited than others as a route towards achieving the

CSOs goals. The characteristics of the CSO as a client play an important role in achieving those goals. Both the

individual goals and characteristics of the CSOs need to be considered in assessing the possible project delivery

methods. There were many arguments found in favour and against each contracting form regarding both long term and

short term CSO goals, requiring a trade-off between utilising contractors involvement upfront (for example in integrated

contracting approaches), and end-users participation and involvement (for example in traditional contracting).

The review of project delivery methods for both new construction and retrofitting highlighted the key aspect of

developing a tailored procurement strategy for CSOs. Although the number of choices and considerations is large, it is

evident that there are many possibilities for CSO clients to achieve their CSO project and energy related goals. The key

challenge for each CSO client remains to develop a procurement strategy that is tailored to its specific goals and

circumstances.

Recommendations

It is vital to identify the characteristics of the CSO community, the goals of the CSO community and the

characteristics of the project. This forms a starting point for a roadmap on how to prepare, organise and validate

the collective procurement process.

CSO clients should aim to start evaluating suitable procurement approaches as soon as possible. The evaluation

should identify the strengths and weaknesses of each route. One challenge is to select a suitable starting point and

work on countering potential threats relating to weaknesses of that procurement approach. The research done in

this deliverable including the case studies provides insight in how potential negative elements of a procurement


approach can be countered (see chapter 5). The CSO client may want to consult a procurement expert in this

matter.

A success factor in any approach is the availability of knowledge and experience to manage the internal decision

process and the construction process. The more complex the project and the procurement approach the more

knowledge and experience is required. As mentioned before, such knowledge is generally absent in CSO

communities. Therefore, such help needs to be sought outside the CSO community (e.g. the CSO expert). Such

an expert can be an independent consultancy, another CSO client, or a contractor with CSO experience.

Early inclusion of construction and energy-efficiency requirements. Characteristics of CSO clients tent to focus on

short term goals (e.g. involvement in decision process, availability of financing). Achieving long term goals (e.g.

energy reduction) requires including a long term perspective which can be achieved through various means. In an

integrated approach, such a point of view is ensured trough the contractors responsibilities for construction and

maintenance, operations, and energy provision. But also in segregated (traditional) forms of contracting, reviews

can be done at specific moments in time to ensure the timely involvement of other expertise.

Related to the above, CSO clients should consider the concept of ESCO for both new build as retrofitting as it

provides possibilities for achieving CSO clients’ goals related to energy efficiency.


List of acronyms and abbreviations

CSO: Collective Self-organized Housing

IPD: Integrated Project Delivery

DB, D&B: Design Built

MEAT: Most Economically Advantageous Tender

ESCO: Energy Service Company

DBFM: Design Built Finance and Maintain

DBFMO: Design Built Finance Maintain and Operate

IPAA: Interim Project Alliance Agreement

EOI: Expression of Interest

SME: Small Medium Enterprises

EC: Energy Contracting

ESC: Energy Supply Contracting

Chauffage: Heating

BOOT : Build-Own-Operate-Transfer

IEC: Integrated Energy Contract

DBM: Design Built Maintain

COMES: Collective ESCO Model

O&M: Operation and Maintenance

CSOEC: CSO Expert Coordinator

EPC: Energy Performance Contracting


Definitions


CONTENTS

HISTORY OF THE DOCUMENT 3

PUBLISHABLE EXECUTIVE SUMMARY 4

List of acronyms and abbreviations 10

Definitions 11

INTRODUCTION 15

1. BACKGROUND: CSO HOUSING PROCUREMENT NEEDS 17

1.1 Common Denominators of CSO projects 18

1.2 Characteristics of CSO Housing Clients 19

1.3 CSO Housing Process Requirements 22

Community forming and organization (Bounding and Binding Conditions) 22 1.3.1

Site Selection and Acquisition 23 1.3.2

Performance requirements 23 1.3.3

Design process (Concept Design, Preliminary Design, Final Design) 23 1.3.4

Construction/Implementation 24 1.3.5

Maintenance 24 1.3.6

2. REVIEW OF THE EXISTING CONTRACT FORMS FOR NEW CONSTRUCTION 25

2.1 Traditional and Fragmented - Design-Bid-Build 25

Advantages for the CSO client 25 2.1.1

Disadvantages for the CSO client 26 2.1.2

2.2 Integrated - Design & Build 26

Advantages for CSO client 26 2.2.1

Disadvantages for CSO client 26 2.2.2

2.3 Extra-integrated - DBFM, DBFMO 27



2.4 Alliance 28



2.5 Critical Appraisal of contract forms for New Construction CSO housing 29

Potential Procurement Strategy based on Traditional Contracting 32 2.5.1

Potential Procurement Strategy based on Integrated Contracting 36 2.5.2

3. REVIEW OF ESCO CONTRACTS FOR RETROFITTING 39

3.1 Energy Contracting 42



3.2 Energy Supply Contracting 44




3.3 Chauffage 45



3.4 Build-Own-Operate-Transfer 46



3.5 Energy Performance Contracting 47



3.6 Shared savings model of EPC 49



3.7 Guaranteed savings model of EPC 50



3.8 Integrated contract model 52



3.9 Critical Appraisal 53

Is it possible to achieve a comprehensive refurbishment? 56 3.9.1

Potential Procurement Strategy based on ESCO contracting for Retrofitting 57 3.9.2

Scheme of the two proposed model types 60 3.9.3

Contracting process 63 3.9.4

Structure and contents of EPC contract 65 3.9.5

Corner points and conditions 66 3.9.6

4. SELECTION OF CONTRACT MODELS 67

4.1 “Most Economically Advantageous Tender” (MEAT) concept 67

MEAT Performance Indicators for CSOs 67 4.1.1

MEAT Evaluation and Award Process 68 4.1.2

Applicability of MEAT to CSO projects 68 4.1.3

4.2 The “CSO expert coordinator” (CSOEC) model. 68

4.3 Pre-tender negotiations 69

5. CASE STUDIES 71

5.1 Retrofitting contracts in the Czech Republic 71

The Czech State of the art 71 5.1.1

Case study “Na Stárce” 74 5.1.2

Synthesis 74 5.1.3

5.2 Retrofitting contracts in Hungary 74


The Hungarian State of the art 74 5.2.1

Synthesis 79 5.2.2

5.3 Lancaster Cohousing Project 81

Decision regarding Design and Build (Integrated Contracts) 83 5.3.1

Appointment of the design team 84 5.3.2

Outline strategy of partnering at Lancaster Cohousing Project 85 5.3.3

Synthesis 87 5.3.4

5.4 New construction CSO contracts in Germany 88

The German State of the art 88 5.4.1

Different contractual approaches 88 5.4.2

The building phases and the influence on contractual issues 89 5.4.3

Special contractual models 89 5.4.4

Synthesis 90 5.4.5

6. CONCLUSION, DISCUSSION, AND RECOMMENDATIONS 92

REFERENCES 95

APPENDICES 96

APPENDIX 1 EXISTING HOUSING TYPOLOGIES 96

APPENDIX 2 ANALYSIS OF EXISTING HOUSING TYPOLOGIES 98


Introduction Collective-Self Organized housing (CSO) refers to the value-driven grassroots movements, initiated by collective end-

users to build energy-efficient housing in a self-organized manner on district-level. The values vary in each CSO

projects as being high-quality buildings, socially-integrated neighbourhoods, energy-efficient/neutral districts etc. The

clients of CSO projects are involved in each stage of the project with different degrees of participation. The involvement

can be an exploration of their financial capacity, community forming, land acquisition; getting in touch with the market

parties, procurement and participation to the design activities. Due to their collective nature, CSO projects have high

potential to boost business activities for Small-Medium Enterprises (SMEs), which develop new products, building

systems or innovative design solutions. Thus, many municipalities consider them as an effective way to improve and

maintain the quality of districts and to boost the urban economy.

However, the majority of CSO clients are not knowledgeable in the design and construction domain, thus have

insufficient know-how in CSO processes; especially not on district-level. Therefore, many CSO projects still use

traditional procurement methods to realize their project, which fragment the overall CSO process, involve the contractor

at a very late stage and do not regulate the concurrency among the parties. Consequently, many CSO projects face

intolerably high rate of delays, cost-overruns, or end up compromising their initial values. Thus, there is a need for a

suitable procurement strategy which corresponds to both the nature and values of the CSO clients, ensures

concurrency between SMEs and CSO clients, and utilises early-integration of the contractor’s insights into the design

process. In this deliverable, we address this need. Below, the structure of the Deliverable is presented.

Chapter 1 identifies the characteristics of CSO housing projects in terms of its driving values, process necessities in

relation with actor analysis. This will establish the background information which becomes necessary to review the

existing procurement strategies.

Chapter 2 reviews existing procurement strategies for new construction projects. They are as traditional/fragmented,

integrated, extra-integrated, and Alliance. This chapter presents a critical appraisal that identifies existing procurement

method’s advantages and disadvantages for CSO projects.


Chapter 3 reviews existing ESCO contracting for the retrofitting projects. It presents a critical appraisal that identifies

existing ESCO contracts’ advantages and disadvantages for CSO projects in retrofitting case.

Chapter 4 presents the selection of the new contracting model.

Chapter 5 presents case studies from both retrofitting and new construction via observation and demonstration cases

that Proficient partners are involved in. It illustrates the differences among project types, end-user tendencies,

procurement methods that all affect the new contract method and procurement strategies for CSO projects.

Chapter 6 provides conclusions and reflections.


1. Background: CSO Housing procurement needs The term Collective-Self-Organized Housing (CSO) refers to a housing model characterized by a high level of self-

organization and participation of the end-users in the processes of formation, requirements definition, planning, design,

implementation and maintaining their own housing project at district level. CSO is defined in PROFICIENT as value-

driven grassroots movements, initiated by collective end-users to build energy-efficient housing in a self-organized

manner on district-level. It is used as an umbrella term that encompasses multiple housing typologies, incorporates

energy efficiency, and the movement driven by a group of individuals who organizes community forming, pre-design,

design, construction and operational phases with changing degree of participation. CSO housing can be either new

construction or retrofitting of existing buildings at district scale (See Appendix 1).

Figure 1 representation of CSO Housing as an umbrella term and mapping grassroots housing movements with explicit

defining area of CSO Housing (WP1, D1.1).

The territory of CSO housing which encompasses existing movements and typologies are represented in Figure 1.

Due to their collective nature, CSO projects have high potential to boost business activities for SMEs, which develop

new products, building systems or innovative design solutions. Thus, many municipalities consider them as an effective

way to improve and maintain the quality of districts and respectively to boost the urban economy. In PROFICIENT, two

types of CSO housing is defined in terms of its construction:

1. New construction of CSO housing

2. Retrofitting construction of CSO housing

New construction involves any form of collective housing project with future owners having a decisive role in planning,

design and construction processes (i.e. co-housing, eco-villages, passive houses). Retrofitting involves a) any form of

housing where owner occupation is present (e.g. condominiums, cooperatives) and the decisions are made by the

community of owners and b) single family houses organized on district level for energy efficient interventions. In either

case, CSO housing projects requires mutual dependency between the individuals participating. Participants can step

into contractual agreement either on the individual or collective levels, as they become the clients of the CSO projects.


However, there are three critical predictions of CSO Housing which challenge the use of existing procurement

contracting methods such as:

1. As CSO housing is a conceptual term that embraces existing grassroots movements, the current

problems of existing movements remain the same, unless they are addressed particularly in the

contracts.

CSO housing is a once-a-life time project in which the lessons are learnt yet not transferred anywhere; facing

with excessively long and costly projects; ending up with mismatches between expectations of community and

design solutions provided by the design professionals when the values and behaviours are not well-understood

and reflected to the design; difficulty to have realistic energy ambition in their programs.

2. As currently the community (the non-professional end-users) has limited access (and insights) to the

businesses and suppliers that are innovative and skilful to apply novel total solutions, CSO housing

projects risk to end up with very standardized design solutions rather than being innovative.

These predictions highlight the importance of finding a suitable procurement strategy that bridges community

expectations and practice of design professionals (including architects, engineers, suppliers, ESCO’s etc.); and

that ensures 1) getting the estimated and expected end-result from the design and construction professionals

through intended degree of participation and concurrency between these actors in CSO projects without

undesired and unexpected consequences for the end-users.

3. The motives, values, and program in both retrofitting and new construction cases differ. The existing

contracting models have a potential unfit to these differences, when a generic one-fits-all contracting

model is defined.

Existing contracting models need to be reviewed in both new construction and retrofitting case in order to see

what conditions change in each case and whether there needs to be two different models defined or one

generic model actually covers the similar concerns, risks and responsibilities with manageable adjustments.

In order to correspond to these potential problems and find a suitable procurement strategy, we need to have a better

understanding of what are the common denominators of CSO housing, what the client profile is, how their requirements

are defined, and which conditions influence the selection of procurement. Below, we start with common denominators of

CSO Housing projects.

1.1 Common Denominators of CSO projects

In WP1, four dynamics that provides interplay in each CSO housing projects are defined (See Appendix 2). They are as

1) values, 2) behaviours, 3) community, and 4) program as illustrated in Figure 2. These four aspects are reflected in

design process either being tangible (i.e. program of the community) or intangible characters (values, behaviours) of

projects.

Values refer to the driving forces behind the community and behind the movements. There are often intangible and in

different degrees depending on the movement. Being different degrees might shape the behaviours, community forming

and having consequences on forming the project program.

Behaviours refer to the actions of the community towards design process. The behaviours of the community are also

intangible and can differ from active towards passive in relation with the design, construction and occupation process of

the housing. Active behaviour can be exemplified as involving in designing (thus taking design decisions), whereas


passive behaviour can be seen in being solely buyer of the end-result, once the decisions are taken. Behaviour is also

related with the decision making within the community which is influenced by the values of the community.

Community refers to the profile of the group who either initiates or are connected during the grassroots movements. The

profile of the community becomes important to describe where the values come from, how the dominance of behaviours

(critical mass, if exists) are shaped, and how the people forming community influence the program of such housing

movements.

Program, as a last aspect of collective housing movements, refers to the physical and tangible outcome of the project

which is shaped by the values, behaviours and community profile with changing degrees.

Figure 2 Four typical dynamics influencing the design process of collective housing movements.

Those four aspects provide an interplay for collective housing movements and becomes crucial to describe to move

further to the collective self-organized housing which is not solely associated with certain neither tangible nor intangible

aspects. Regardless of the political, ecological, social ideology, CSO housing becomes a tool to build and/or transform

existing districts to sustainable districts. For the selection of procurement, the following issues become important.

Identification of the values behind the community,

Translating the values to the performance requirements and consequently to the program,

Understanding the expected behaviours based on the community profile and its values,

Using the values to both attract more members (when necessary) and make an explicit agreement that

enables commitment between the community,

Understanding the way that the behaviours of the community are shaped by the values and define the degree

of participation of the community to the definition of the program (including requirement definition, design

process and construction etc.),

Ensuring the expected behaviours of the community in the overall process of CSO housing

In order to incorporate these issues into procurement, it becomes important to define common characteristics of the

CSO housing clients.

1.2 Characteristics of CSO Housing Clients

The characteristics of CSO clients became subjects in D1.2 and in D1.3 and D1.4. There are many variables in the

definition of characteristics of CSO clients depending on the party who drives and dominates the CSO housing. Based

on the two major distinction (as 1) proactive and participative collective client as in end-user dominant process and 2)

Program

Values

Behaviours

Com

munity


proactive and facilitative SMEs as made in D1.2/3), the clientship profile can change significantly. However, even

though the values that trigger individuals to take part of the community and form collective clientship can change, there

are still generic characteristics in each CSO client. Here we summarize the essence of these characteristics relating to

the procurement selection.

CSO Housing clients require participation to the decision and design process but with a changing degree

depending on the party initiating and dominating the project.

The clients of CSO housing -when the end-users initiate and dominate the process- involve actively in each stage of the

project; exploration of financial capacity, community forming, land acquisition; getting in touch with the market parties,

procurement and participation to the design activities. Their involvement which arises from their characteristics becomes

a prerequisite to reflect in contracting market parties in order to realize CSO projects. The critical issue for procurement

is that a procurement method should provide room for such active involvement and accommodate the dominance of the

client in design and decision process, particularly when the client is a non-professional one (see CSO clients as non-

knowledgeable in design and construction).

CSO clients are private clients; therefore they are free to choose any party(ies) to procure without tender.

In the EU, public clients are often bounded to national or European regulation on the use of procurement methods and

contract models. For example, national law may prevent public clients to enter into an alliance agreement because this

type of agreement includes formation of a new legal entity (which may be prohibited). Private clients are less bounded

to such regulation, as they are free to choose any method/contract type that is preferred. CSO clients are private entities

and therefore may not be bounded by several regulations that a public client has to fulfil2. However, when a tender

process is well-organized and CSO clients are well-prepared, a tender becomes a very beneficial process to stimulate

competitive bids (and innovative solutions) that the CSO clients can chose among. The critical question here is that how

a non-knowledgeable collective client should be assisted and equipped with tender process and benefit the

competitiveness and negotiation process.

CSO clients organize themselves in different forms which influence the way of contracting the market parties.

In CSO housing projects, end-users can organize themselves in different ways. Examples are that they are:

a. Gathered in an informal community (loosely coupled individuals which contract parties individually)

b. Semi-formal community (working as association which legally bounds the individuals and contract parties in

either individual or collective manner)

c. United in a formal way, as a business/legal entity (i.e. limited company which contract parties as a single

institutional entity rather than individuals)

Each individual commits to the project due to the fact that they associate themselves with the project, behaviour,

program or values behind the community. However, the community members do change due to unexpected changes of

their employment, marital status or simply in expectation from CSO housing initiated. It means that there are often drop-

2 In some cases, Public Law Bodies might be involved in the process which might impose certain

rules regarding the procurement.


in/drop-outs observed in the community which might change the management structure of CSO clients and influence

their procurement and have severe consequences towards the project progress. Thus, a clarification is needed to have

a concrete official base and have formal commitment (and to avoid drop-outs of the client members in the midst of the

project). The challenge here is that the CSO clients traditionally do require such formal clarification and bear

consequences prior to procurement of market parties. And the critical question is which form of community organization

suits their program, values and community profiles better, as this form also changes their contracting capacities of the

CSO clients.

CSO clients are often not knowledgeable about establishing what performance to define from settlements

(district-level), from housing (dwelling-level), building systems (system-level), and materials (material-level).

CSO clients are generally considered as non-knowledgeable in design and construction, as they are not professional

clients. Their CSO housing project is a once in life time project and accommodate learning by doing. The challenge here

is that how to procure parties when there is limited (if not none) experience on procurement, as they may realize the

procured party is not suitable to match client’s requirements and wishes (particularly when the procurement is already

done for the overall process).

CSO clients have energy performance requirement in their projects, yet these performance requirements are

not explicit/well quantified

CSO clients incorporate energy ambitions to be part of their values in their programs, but these values may not be

always explicit. One of major characteristics of CSO clients is that the collectives -per definition- include energy ambition

(being energy-efficient, passive house, energy positive etc.). The challenge is that if this ambition is not based on a very

clear regulation, directive, procedure (i.e. BREEAM score, passive house regulation etc.), it is very difficult to procure

market parties that would then deliver a service that fulfils the client expectations. In other words, if the energy demand

of the client base on a shared reference, the outcome can be controlled and the process to achieve the solutions may

not be fully described.

CSO clients have differing financial capacity containing individual bank loans and collectively gained subsidies

and grants.

CSO clients have individual financial instruments and collective financial instruments. Bank loans,

national/international/European grants for energy-efficient housing and districts need to be investigated; municipal/state

subsidies should be explored and clarified while community is being formed (See D5.2). Depending on the loans, grants

and subsidies, CSO clients will have different requirements than other CSO clients (i.e. energy performance of

buildings/districts, social value boundary conditions to acquire the loan. These external requirements become boundary

conditions for CSO housing projects, and influence the selection of the party or its service. The challenge is how to

select a procurement method which matches to the different financial capacities of the individuals and differing

requirements from the financial institutions in CSO projects?

Above, the characteristics of the CSO clients were identified. In CSO projects, these characteristics are reflected to the

requirements of the end-users.


1.3 CSO Housing Process Requirements

Below, the process requirements are elaborated based on the activities defined in D1.2. The Figure 3 visualizes the

phases and below we identify which activities need to be conducted in each phase. These activities will be issues in

procurement as the procurement strategy needs to define which activities need to be conducted by which party and

what the legal relationship should be among the parties.

Figure 3 The CSO process definition from WP1.

Community forming and organization (Bounding and Binding Conditions) 1.3.1

This phase includes the following steps:

Identification of the common vision

o Economic goals

o Social goals: low/high community intention

o Environmental goals: first EeB requirements

o Functional goals (typology, shared/individual facilities, district size)

o Procedural (Low/high participation process to be established between community members, and

procured parties)

Identification of which form of organization is suitable

If land is not acquired, finding suitable land with attracting more members (when necessary)

Clear procedure for decision making among individuals

Clear incentive scheme or rules depending core members or the individuals who are selected to spend more

time energy, time and effort (i.e. semi/full professional role as project manager, construction manager,

accountant, architect etc. depending on the professionals in the community and the degree that these

professionals want to take more responsibility towards the project

Exploration of suitable grants, loans that can be applied for being collective or carrying out sustainability

ambition (with clarification of the requirements of these institutes)

Exploration and consensus on housing typology (‘program’) and expected physical end-result that can be

agreed upon

Community legal form


o Participation rules (affecting the design on Procedural level):the documents and agreements related

to the legal form express the relationship among members, defining then the participatory activities

and the decision-making structure

o Financial rules (affecting the design on Economical level): the modality of financing is established

and consequently the time and the cost of the intervention

Site Selection and Acquisition 1.3.2

Exploration of potential land and understanding of building & purchase conditions

o Analysis related both to constraints, regulations and site/building data (climate, environmental,

morphological)

Identification of necessary number of client members via preliminary master plan (within accurate building and

purchase conditions)

Planning the approach to select and divide the plots among the members (i.e. pricing based on plot area,

orientation, agreed privilege of the core members and planning the strategy to tackle the missing members)

Land purchase via the community legal form and financial institutes

Performance requirements 1.3.3

Identification of energy-performance expectation from the housing and districts

Identification/definition of service and product quality to be asked from the market parties

Identification of project deadlines and time frame

Embedding the long term service needs, when applied (i.e. maintenance, operational etc.)

Ensuring the participation means and timings in the design process

Defining the flexibility in pre-defined end-users and allocation of room of iteration (with clear consequences in

both sides in case not provided by the parties or abused by the end-users un/intentionally)

Ensuring the master plan which reflect the selected plot for the current members, approach, and blank plots

for attracting more members

Definition of the reference regulation, directive or certified scoring which becomes close to interpretation of

parties for procurement (i.e. BREEAM/LEED score, passive house etc.)

Design process (Concept Design, Preliminary Design, Final Design) 1.3.4

Intended participation to the design process

Intended interaction between client and design professionals

Coordination between design activities

Design proposals which translate values of the community (economic, environmental, social, spatial,

technological etc.)

Settlement plan which visualizes the general design decisions such as orientation, common areas and

facilities, preliminary layout of housing, energy plants (if applicable)

Design which ensures the building permit for each housing and the overall settlement

Design drawings/proposals that ensures any permit necessary prior to construction

Ensuring that design drawings do not accommodate any errors or mistakes that becomes barrier for

construction (design professionals become liable for any error in the design which challenge contractor to

deliver the design submitted to the client)

Technical specifications of the design


Detailed design drawings

Construction/Implementation 1.3.5

Construction drawings (if not undertaken in previous phases)

Ensuring the delivery within the agreed construction quality, time and budget (in case different stakeholders

are responsible for different phases, incentive mechanisms to stimulate potential gains such as cheaper or

shorter delivery when equivalent product can be used through bearing the consequences that might occur in

future i.e. operational challenge or cost etc.)

Maintenance 1.3.6

As-built drawings (drawings and reports)

The next chapter presents a review of existing contract forms to define which procurement strategies are suitable for

CSO housing projects.


2. Review of the existing contract forms for new construction

2.1 Traditional and Fragmented - Design-Bid-Build

Traditional contracting is a method which became standard practice in the building industry for 150 years following the

emergence of the general contracting firm and the establishment of independent client consultants. It is a project

delivery method in which the client contracts separate entities for both the design and construction of a project

independently. In this delivery form, the client usually becomes responsible for design reviews, differences between

design criteria and 100% design errors/omissions revealed during construction, constructability of design, environmental

impact reviews, coordination with other work, differing sub-surface conditions, design defects, undefined utilities

affecting site, hazardous waste, third party litigation, and warranty for facility performance (Neil and Al-Battaineh, 2011).

The client hires professionals to undertake design and documentation activities. Prior to the selection of a contractor

that undertakes the responsibility to build the project, full documentation is required. Based on these tender documents,

the client selects a contractor to build the project. The contractor becomes responsible for project site safety,

coordination of construction, construction defects, and inflation (Lahdenpera, 2011).

In this form of delivery method, the client needs to conduct a selection process to firstly appoint a designer (and

engineers) and a contractor (as builder). In CSO projects, this means that the collective group of end-users need to

organize themselves (and as a client group), to conduct activities regarding the selection process. Below, the

advantages and disadvantages of the traditional project delivery method are provided.

Advantages for the CSO client 2.1.1

The CSO client has a direct contact with the design and construction professionals, as the client contracts

design professionals separately. This gives more opportunities for the CSO clients (as end-users) to acquire

more room in the involvement with the designers. The active participation can be easier.

As CSO client is non-professional client, the design process in which the client has a direct relation and

influence, helps the client to identify their requirements through visualizing the end-product prior to the

contractors’ involvement. Incomplete, incorrect or missed items are usually discovered and addressed during

the bid process.

The CSO client has a very elaborate design prior to the construction phase, and therefore can have a better

cost estimate. The design team in which the CSO client contracts each party separately seeks for the interests

of the client.

As the CSO client has an elaborate design prior to the construction phase (and prior to the contractor’s

involvement), can benefit from the competitive environment and have an opportunity to have different

perspectives on construction solutions (i.e. building systems, different performance materials) and not

dependent to one contractor’s solutions. Assists the owner in establishing reasonable prices for the project.

The CSO client can benefit from the competition to select the contractor in a way that the different solutions

(on building systems, or cheaper/more durable/more energy efficient materials that can be used instead) are

gained through contractors’ knowledge.


Disadvantages for the CSO client 2.1.2

As the knowledge of the contractors (or any other construction professionals) is not integrated in the design

process, this creates a danger for re-design works in the later stages of design, or a long gap between tender

and construction. Any mistake or error done by the design team is examined often by the contractor and fixing

the errors or mistakes may cause delay or increased construction costs.

The lowest-price often becomes the determining factor which might affect the quality of the end-result, unless

the CSO client tenders uses performance criteria established prior to the appointment of the contracting.

The fragmentation between design and construction phases does contradict with the essence of concurrent

(and participatory) design concept as is being developed in WP1. As the contractor only gets involved in the

post-design stage, the knowledge of the contractor in the building systems, materials and the constructability

is often missing.

The CSO client may find themselves in a danger of compromising the quality (or moving away the proposed

end-product from the design teams) when the contractor involves with his perspective and objectives at the

construction stage.

2.2 Integrated - Design & Build

Design & Build is a project delivery approach in which the client contracts a single party to undertake the design and

construction services. Benefits are associated with integrating these two tasks. As the contractor becomes responsible

for these tasks, the contractor then will also bear the risks associated with these tasks.

Integrated approach does imply that clients become responsible for the definition of the end-user requirements.

therefore,, the client will prepare functional requirements. Several interested parties can then submit their design in a

tender. After awarding of the contract, the private company will be responsible for further detailing and realizing the

design.

An alternative to Design & Build is Engineer & Build. Engineer & Build is an integrated project delivery method, but

usually starts with a predefined preliminary design. The contractor then becomes responsible for further finalizing the

design and construction.

Advantages for CSO client 2.2.1

The CSO clients appoints a party that works as ‘project developer’ and relieve themselves from major legal

and managerial risks and responsibilities.

Research demonstrated that design-build contracts leave the client with cost and schedule reduction as 30-

40% faster and 5-6% lower budget comparing to the projects realized with the tradition methods (Victor

Sanvido and Mark Konchar). This highlights a big potential to deal with the major problems in CSO projects,

delays and cost overruns.

Disadvantages for CSO client 2.2.2

Appointing the task to the construction professional (i.e. contractor) can hinder the quality of the buildings, as

the quality performance of the overall design, building systems, materials are not clarified or even mandated

by the CSO client to the construction professional.


2.3 Extra-integrated - DBFM, DBFMO

Extra-integrated project delivery refers to the method that the CSO client appoints one or more parties to be responsible

for the activities regarding the designing, building, maintenance and (optionally) operation phases. The contracted party

is also involved in financing the project. The payment to the contractor after the construction is done periodically, based

on services provided (Source: www.rijkswaterstraat.nl). In DBMF, contractor delivers a service spanning 10-15 years.

(Lenferink et al 2012).

A DBFM contract improves relations between the stakeholders, as their interests are aligned with a shared common

goal within the contract and consortium. However, DBMF has a closed character of procurement, which can obstruct

their involvement of public and local government in later stages (Lenferink et al 2012). For CSO clients, the risk might

be that the CSO clients is not being involved after contract signing (e.g. the ‘closed character). When this closed

character is not dealt with (i.e. including special arrangements or contractual annexes for ensuring the participation

means, forms and timings between the CSO clients and the consortium), extra integrated contracts do not facilitate

automatically the involvement of the CSO client in the CSO project phases.


The design, construction and maintenance activities are planned under one party (or the sets of parties such

as consortia that are legally bonded prior to the project). This often brings a better coordination and lower

costs for the client than traditional contract, as CSO client needs the concurrency of the design professionals.

The CSO client does transfer to the contractor the responsibilities about any errors that occur during design,

construction and maintenance period. This becomes a crucial benefit for the non-professional client who does

not have the knowledge of the design and construction domains.

For DBFM contracts, the CSO client and the contractor have an equal stake in the success of a project. This

increases the chances of a successful collaboration between the client and contractor.

The client pays for the realization of the project, and this leaves more space for the CSO clients to concentrate

on their own businesses.


Design-build may restrict the involvement of the CSO client and allow limited participation to the overall

process. This is as a result of the transferred risks and responsibilities to the ‘parties prior to the design

process, unless the high participation degree is mentioned in the requirements. This contradicts with the

participatory design approach proposed in WP1, yet does facilitate the concurrent design process among the

design professionals (as the design professionals work together from the beginning of the process).

DBFM contracts are often used by the public client and on public projects (Lenferink et al 2012). There is a

lack of experience and lessons-learnt about the suitability of DBFM to the CSO clients who are considered as

non-professional collective groups of clients.

The evaluative studies on DBFM comparing to the traditional contracting (Committee Ruding, 2008; Dutch

Ministry of Finance, 2010; Klijn, 2009; WB Consulting, 2009) address that DBMF contracts only reflect the

‘hard’ outcomes of project management and little is known about the experiences of involved public and

private stakeholders interacting and cooperating within such integrated contracts (Lenferink et al. 2012).


2.4 Alliance

An alliance can be characterized as a "cooperative arrangement between two or more organizations working towards

achieving common goals and objectives for a specific project” (Mistry and Davis, 2009 in Raisbeck et al., 2010).The

traditional, integrated and extra-integrated project delivery methods result in a division of tasks. In alliance delivery

method, the client and the contracted parties share responsibilities.

Alliancing involves a formal contract in which the parties undertake to act in the best interests of the project and this is a

key difference from partnering where the undertaking to act in such a manner is purely voluntary. In Alliance, a

contactor gets involved to make a profit from a contract in order to survive commercially and the client has a direct

influence on the way in which the contractor makes a profit, through the selection of the procurement strategy (IADC,

2008).

Ross, 2003 defines essential components of a project alliance as follows;

Based on capability approaches & systems and subjective criteria (i.e. enthusiasm, commitment, “chemistry”

with the client), participants are selected.

A “competitive price” model has been used in which two parties develop a target cost before the alliance is

formulated with a selection being made on the lowest price.

A commercial framework is created that drives “best for project” decisions that are consistent with and create

an environment of exceptional performance and enhanced reward for all participants.

All risks are shared by all the members of the alliance.

The only way to increase “profit” is by performance which exceeds “business as usual” outcomes – sometimes

referred to as minimum conditions of satisfaction.

An integrated team is formed and personnel are selected on a “best for project” basis.

All decisions at the most senior/Project Board level must be unanimous.

A ‘no blame’ culture in which there can be no formal disputes.

A model alliance contract may include the following categories of documents based on IADC (2008)

a deed of agreement that defines the terms and conditions of the agreement,

annexes containing the client’s project requirements,

schedules in which the tenderers placed their replies to the client’s project requirements,

general conditions of contract and,

technical specifications.

Alliance contract procurement process is rather similar to a traditional procurement process. The procurement process

starts with preparation of Expression of Interest (EOI) document by client. Then the offer put in the market. Following to

the responses, a pre-qualification phase is conducted. This pre-qualification is done through selection a number of

applicants based on their best matching responses (from 4 to 6) to EOI. Following to this phase, interviews then take

place with the pre-selected parties, then two contractors are listed. After further and more detailed interviews,

questionnaires, on-location visits and/or third-party references, the final selection is made and an Interim Project

Alliance Agreement (IPAA) is signed. On the basis of the IPAA project planning, design and investigation commences.


This will result in a Target Cost Estimate (TCE). As soon as parties agree on the TCE, the contract can be signed and

the alliance is official (IADC 2008)


CSO clients do not have to prepare a very detailed program of requirements. The expression of interest (EOI)

can be sufficient to reflect their ambition, need, wishes within their boundaries. Even then, explorations of what

boundaries that the CSO clients have can be done through the procurement process, as this process have

several stages.

Procurement based on the ‘competitive price” model can be beneficial to CSO clients to gain power in

choosing a party who can deliver best product and process to CSO clients.

Forming an integrated team upfront of the project has a potential to enable participatory and concurrent design

principles.


- In the examples where competitive price leads to lowest price for selection, this can carry on the same

difficulties of the traditional procurement such as quality-compromising.

- The CSO clients, non-professional and non-knowledgeable in construction, needs support to organize the

procurement process (and be aware of what is required to assign).

2.5 Critical Appraisal of contract forms for New Construction CSO housing

This section will critically review the existing contracting types against criteria that is suitable for the CSO clients. These

criteria emerged from the nature of the CSO clients, their process requirements (D1.2), and common characteristics

(common denominators) of the CSO projects identified earlier. Table 1 provides the summary of this critical appraisal.

Contracting capacity of CSO clients is bigger (in terms of being capable of financing and managing the procurement)

in Design-Bid-Build (Traditional Contracting), It is because the price of whole procurement is divided into packages (I.e.

appointing an advisor for performance requirements and land acquisition; appointing a designer for

reference/concept/detailed design; appointing a contractor for building the designed houses). Through these packaged

procurement, the CSO clients gain know-how on which issues to deal within a procurement. Thus, in design-bid-build,

there is a gradual procurement and financing possibilities is relatively easier than integrated contracting. This is similar

also in Design and Build, as the total sum of the project price is divided into two, and receiving loans can be easier after

having the land is acquired (or reserved) and the design is ready. In other words, as the procurement price becomes

much larger than the fragmented ones, the payment (i.e. loans, subsidies, incentives) need to be ready prior to the

procurement. This requires preparation, commitment already and payment insurance already.

Inclusion & Definition of performance requirements is embedded in the design-bid-build, as the appointed designers

translate the performance expectations of the CSO clients into written form or reflect to the design proposals. This is

similar in Design and Build as well. In Alliance, the CSO clients are expected to define ‘Expression of Interest’ which is

the reference document to procure design and construction professionals. Based on this initial EOI, the definition of the

final requirements is performed. However, in DBFM and DBFMO (extra integrated contracts), the CSO client is not

involved in how the translation and definition of the CSO clients requirements are. Both form of contracting already


requires pre-defined definition of requirements that becomes the basis for the bidding process for several consortia.

After any consortium is appointed, often the clients are not involved, as they seek for the end-result not the process.

This nature of extra integrated contracts contradicts with the nature of the CSO clients and their process expectations

defined in Section 1.2.

Direct contract to suppliers is higher in design-bid-build, as the procurement in each stage is led by the clients. The

CSO clients directly procure advisors, professionals. They are at the steering wheel in all stages including the

construction. However, in other forms of contracting, contacts with the suppliers occur via the contractors or

construction managers and not necessarily the CSO clients’ involvement.

Participation degree to design process is high in design-bid-build and design and build, as the CSO clients are

involved in parallel with the definition of requirements and visualization of their requirements via the design proposals.

They have a direct contact with the procured parties and more role and power in demanding such participation.

However, in particular extra integrated contracting, such participation does not occur per se. The definition of extra

integrated contracting is based on diminishing the role of the client in the overall project process and ensuring the end-

delivery matching the requirements/performance expectation that was the basis for the procurement. Thus, any

additional participation request from the CSO clients to the appointed consortium can be seen as extra cost, time and

effort that are to be bared by the CSO clients. This is in the case where the participation request is not well-defined prior

to the procurement. Additionally, in the case of Alliance, all decisions at the most senior/project Board level must be

unanimous.

Participation degree to construction process, in the light of the previous aspect, it is higher in the design-bid-build

and relatively low in design and build. However, in DBM(F)O cases, the client is –per definition- not involved in the

construction phase, as the main idea behind choosing the such contracting is to transfer the risk and responsibili ties

regarding any activity of design, construction and maintenance. These reasons are also to portray why the inclusion of

maintenance is in DBM(F)O contracting.

Accuracy of the cost estimation prior to design is problematic in design-bid-build contracting and carry a high

potential problem for the CSO clients. It is simply due to the contractor’s knowledge integrated at later stage. The party

that realizes the construction is involved at the later stage and does not reflect to the experiences and constructability

knowledge early in the design process. Design and build is a step forward in this respect, as the contractor is involved

as a reviewer. Previous research demonstrated that design-build type of contracts leave the clients with costs reduction

as 5-6% lower budget comparing to the projects realized with the tradition methods (Victor Sanvido and Mark Konchar).

And yet the CSO clients still benefit the competitive tender, after they receive a detailed design which is materialized,

and contractor’s experiences are reflected in the design. This accuracy prior to the design is handled in integrated

contracting, with the assumption that the CSO client prepares good performance requirements.

Short-time delivery is very problematic in design-bid-build due to the gap between tender and construction. In this

aspect, integrated approaches become promising. As an example, the previous researches demonstrated that design-

build leaves the client with schedule reduction as 33.5% faster comparing to the projects realized with the traditional

methods.


Inclusion of Energy efficiency/Sustainability Values is high in extra-integrated contracts, when energy-efficiency

is included in the performance definition (and ideally the methodology to asses and steer the energy efficiency

performance of the building such as LEED or BREEAM scores etc.). However, integrated approaches (including Design

and Build) does imply that clients become responsible for the definition of the end-user requirements.

Early Integration of pioneering technologies can very possibly be ensured in particular extra-integrated contracts,

when included in the performance expectations prior to the procurement. This comes from the nature of concurrency

provided by the extra-integrated contracts if the CSO client is aware of the benefits of using such technologies (not

necessarily knowing which technology to be used). At this moment, information available to the CSO clients, open

platforms that bridges supply and demand side becomes crucial to create awareness on knowing available technologies

or the benefits of early integration. This can consequently affect the inclusion of energy efficiency/sustainability values

through such platforms.

Ability to provide learning cycle for tendering is very low in extra-integrated contracts, as it is one time project.

Inclusion of maintenance is included neither in design-bid-build, design and build nor explicitly in Alliance. This is the

strong point of DBFM and DBFMO contracts as the financing is also provided through the parties in the consortium and

maintenance cost is an influencing factor for return of investment for these parties. In fact the model known as alliance

can include operation and maintenance within the collaboration agreement, extending this beyond construction.

Table 1 summarizes the assessment of existing contracting types for a CSO housing process.

Co

ntr

acti

ng

cap

acit

y /

Easy

co

ntr

acti

ng

Incl

usi

on

& D

efin

itio

n o

f p

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orm

ance

req

uir

emen

ts

Ab

ility

to

dea

l wit

h d

ynam

ic r

equ

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ents

Dir

ect

con

tact

to

su

pp

liers

Par

tici

pat

ion

deg

ree

to d

esig

n p

roce

ss

Par

tici

pat

ion

deg

ree

to c

on

stru

ctio

n p

roce

ss

Incl

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of

mai

nte

nan

ce

Acc

ura

cy o

f th

e co

st e

stim

atio

n p

rio

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des

ign

Acc

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cy o

f th

e co

st e

stim

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n p

rio

r to

co

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ruct

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Co

mp

etit

ive

adva

nta

ge

Co

ncu

rren

cy a

mo

ng

SMEs

Incl

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on

En

ergy

eff

icie

ncy

/Su

stai

nab

ility

Val

ue

s

Sho

rt t

ime

des

ign

del

iver

y

Sho

rt t

ime

pro

ject

del

iver

y

Lon

g te

rm s

ervi

ce s

up

ply

Earl

y In

tegr

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n o

f p

ion

eer

ing

tech

no

logi

es

Ab

ility

to

pro

vid

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arn

ing

cycl

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r te

nd

erin

g

Design-Bid-Build

++ ++ ++ ++ ++ + -- -- - + -- -- -- -- -- -- ++

Design & Build + ++ + + ++ + -- -- + + + - + + - - +

DBFM, DBFMO - - -- -- -- -- ++ ++ ++ ++ ++ + ++ ++ ++ ++ --

Alliance - - -- - + -- --/+ ++ ++ ++ ++ + ++ ++ ++ ++ --

Table 1 The overview of the existing contracting types for the CSO housing clients’ process and project requirements


Potential Procurement Strategy based on Traditional Contracting 2.5.1

At this section, we provide potential procurement strategy based on traditional contracting. This will also include where

the potential problems occur. In this strategy, the procurement is divided into three stages.

Stage 1: performance requirements

Stage 1 includes the activities described in Section 1.3.1 and Section 1.3.2 (summarized from D1.2). In this stage, the

group of individuals get in contact with professional advisors (ideally through E-Marketplace) whose references and

professional background is suitable to deal with the intended scale of the project and the collectiveness of the clientship.

The outcome of this procurement should be the performance requirements of the CSO clients and reflect their values,

community expectations, expected/desired behaviour. These performance requirements should lead the CSO clients to

procure another specialist (or group of specialists/advisors) for the upcoming stage and ensure the quality delivery.

CSO clients can also appoint this advisor to be responsible to the second tender (for design). If the quality of the

delivery of the Stage 1 becomes insufficient for the second tender, the advisor should be liable for any errors, changes

or revisions that are needed and occurred due to the insufficiency of the output.

Figure 4 The Stage 1 comprising the CSO process phases and partial deliverables (adopted from D1.2)

Furthermore, the potential CSO clients need to pay attention to the openness of the advisor and the ability to translate

to their preliminary values to the performance requirements that enable the CSO client to procure right parties to

undertake the design activities (see Stage 2). The advantageous situation of this stage is that the price of the Stage 1 is

(should be) much smaller than the total sum that is required from the beginning till the construction completed (in

integrated contracting, this is the total sum which the CSO clients tender). Through the size of the tender and the

outcome need to be delivered, the CSO clients can test their skills and check the working synergy between the advisor

and the CSO client at the Stage 1. As due to the nature of the CSO clients (See Section 1.2), the CSO clients learn

procurement by doing. Thus, the CSO client is expected to be more experienced in tendering and selecting the suitable

parties.


If the advisor contracted at the Stage 1 is also given a possibility to supervise the process in the coming stages, this can

become an advantage to the CSO clients. Then from the advisor’s side, it does not become a single task and refer

bigger stake at longer time, the advisor becomes more cautious with the quality and the delivery of the outcome. For the

CSO client’s side, they can also steer the Stage 1 better, be sure about the quality of the Stage 1 delivery and check the

working relationship with the procured party and be more aware of what they seek for (and what they do not want to

have) in the next stages.

Stage 2: detailed design

Stage 2 includes the activities described in Section 1.3.3 and Section 1.3.4. In this stage, the CSO clients potentially

need two procurements; 1) the process support (the first advisor/group can be re-procured, when the client is satisfied),

2) design professional(s) who prepare design proposals that match to the performance requirements of the CSO client

and coordinate the necessary domain knowledge (i.e. energy advisor, suppliers, HVAC, Structural engineers etc.). The

condition would be to legalize the coordination and integration work to the procured design professionals, particularly

inclusion of the domains, which are often contacted in the later stage (i.e. construction, maintenance).

As the price of the design service (including detailed drawings) is smaller than the total sum comparing to the

integrated procurement. Similar to the benefits of the Stage 1 apply to the CSO clients. However, one of the critical

issues here is the choice of conducting a competitive tender, even though the price of the design service might be still

below the threshold obliged for tender. On the one hand, tendering provides a process in which the CSO clients can see

the competitive bids and gain negotiation power. On the other hand, if the tendering requires experience and certain

skills prior to the tender so that the clients can benefit this negotiation power and attract right parties for their services.

This means that the tendering process needs to be well-prepared and managed. This becomes a critical obstacle for the

non-professional clients. At this stage, the first advisor’s role can be enhanced (ideally already at the Stage 1). If the first

advisor (Stage 1) also is responsible for the tendering process, then the gap between the two stages can be handled.



Depending on the working relations established with the first advisor, the CSO clients can assign the advisor for the

process help required for the communication and interaction with the design professionals. If the previous experience is

negative, the CSO clients can use this chance to find another advisor who helps them to crystalize their requirements

evolved along with the design, and facilitate the participation among the supply and the demand side.

One of the critical issues here is to ensure the performance expectations and more importantly definitions of the CSO

clients. The definition includes what the criteria are and the methodology to assure that the design corresponds to the

criteria. The CSO clients need to mind that the advisor who is assigned for the process support (the process manager)

should be able to assist the CSO clients in this manner and formulize it in the communication procedure with the

procured design parties.

Regarding the design parties responsibilities, the CSO clients and the process manager should mind the coordination

task of the design party (ideally the architectural office) regarding the reflection of the performance expectation and thus

integrating the knowledge of the specialist at the right moment (i.e. energy advisors, cost estimates, product suppliers,

construction techniques for the selected materials and building systems etc.). The CSO clients should consider any

error occurring due to the lack of integration of knowledge is a liability of the design party, that is assigned and be in

charge of the coordination.

As seen, the design party’s procurement already highlights clauses for protecting the right of the CSO clients regarding

the potential consequences of the unintegrated knowledge. This means that the traditional procurement needs particular

adjustments to match with the CSO clients’ characteristics and process requirements. The CSO clients and the process

manager should then include the quality assessment of the design delivery prior to the construction. One of the

downside of the traditional procurement was the constructability of the delivered design. One of the adjustments should

also include increasing the constructability of the design already before the contractor is assigned. Thus, any error or

problem occurred due to constructability should be the liability of the design team. At this point, the selection of and the

attitude of the contractors also becomes important. This becomes the topic of the Stage 3.


Stage 3: construction

Stage 3 includes the activities in Section 1.3.5 and Section 1.3.6. As the outcome of the Stage 2 is the detailed design,

the CSO clients should again conduct a competitive tender (ideally via the help of a Process Manager) in order to select

the best matching contractor that realizes the detailed design.

The CSO clients need to mind again to exploit the advantage of the competitive tender. The cost estimate prepared in

the Stage 2, technical specifications, constructability are the reference topics that the contractors base on. At this

moment, the critical issue is on the evaluation of the proposals of several contractors and possible changes in design,

material choices, system use etc. The CSO clients need assistance or skills to review these proposals and to ensure

that the end-delivery of the contractor fit to the requirements and delivered design documentation.


Conclusions:

Below, there are highlights from the procurement strategy based on traditional contracting.

Stages become more manageable and the CSO clients practice their clientship skills in each stage.

The transition between stages are crucial and the end-result of each stage should ensure the quality to

conduct the next stage. Otherwise, there are redundant efforts which is often bared by the client.

The first advisor that assists the CSO client (initial group) becomes important as the advisor should assist the

group with the best suitable choice of community forming, and decision management system of the

community. Besides, the assist should include land acquisition and preferably financial strategy to acquire new

members, existing suitable incentives and subsidies, or loans.

Procurement strategy based on Traditional contracting should involve at least certain degree of integration in

order to avoid common problems described in Section 2.1.2. This degree deals with minimum process help of

an advisor who is not a part of the design team and experience in preparation of competitive tender or at least

selection of a suitable company delivering the intended service and the quality of the delivery.

High degree of involvement on all topics. But it does require more time due to segregation of design and

construction phases.


Potential Procurement Strategy based on Integrated Contracting 2.5.2

Another possibility for procurement strategy is to base on integrated contracting. Here we try to identify the differences

comparing to the procurement strategy based on traditional and fragmented contracting.

Stage 1’: reference design

This strategy deals with two staged procurement. There is an optional stage where the community can get advisor to

conduct the activities defined in Stage 1 in Section 2.5.1. Different than the Stage 1 defined earlier, the first procurement

deals with a reference design as an outcome of the first procurement. In other words, the CSO clients (either organized

themselves with assistance or based on self-organizing efforts) are expected to hire a design professional that

visualizes the reference design (which can be only visualization of their requirements, wishes) and define performance

expectations (i.e. energy, materialization, life-style, community behaviour etc.) that attract the commercial parties to

provide several offers. This reference design preparation is relatively small comparing to the Stage 2 in Section 2.5.1,

as it only deals with more visual representation of clients’ expectations. In other words, these expectations can be both

functional and technical, but they are less detailed then the form above in Section 2.5.1. This reference design is to

leave room from optimization by market parties through their offers.

Stage 2’: detailed design and construction

After having the reference design, the CSO clients use this design as a basis for attracting the market parties. This

becomes a documentation that is to see the competitive offers and ideally initial solutions of the market parties. The

idea is to accommodate the activities defined in Stage 2 and 3 in Section 2.5.1 and transfer the risks to the appointed

parties. The advantage is that the CSO clients still involve actively in the design process, but may not necessarily

involved in technical specifications or construction techniques etc. depending on the participation degree of the CSO

client. In this form, market party(ies) becomes responsible for construction and maintenance as well.

Conclusions:

Below, there are highlights from the procurement strategy based on integrated contracting.

The CSO client still involves in the creation phase, as in Stage 1. They can have a high level of participation

based on the agreement between the designers and themselves.

The CSO clients have a more grip on what roles, responsibilities, and risks that they can take and they can

transfer.

As there are not many stages to procure, the process becomes more manageable.

Involvement of client is limited to reference design. Market challenged to provide optimal solution.


Figure 7 Illustration of how CSO process is enacted through Design-Build Procurement based on WP1 process model


Phases project life cycle Notes

Phases

Defining requirements

Design Construction/Build Maintain/operate

Procurement

Strategy Based

on Traditional

Contracting

Detailed design is developed together with

architect.

End result is design + technical requirements.

Use of contractor/ESCO to review design for

energy efficiency, constructability.

Bouwteam (design and build)/building team

<<Segregated>>

1 or more market parties are

selected to construct design

(design/bid/build)

<<Segregated>> Separate

contract for maintenance.

Included in construction.

High degree of involvement on

all topics. Can require much

time (due to segregation of

design and construct).

Procurement

Strategy Based

on Integrated

Contracting

Reference design is developed

with architect.

Requirements can be both

functional and technical. Less

detailed then form above, leave

room from optimization by market

parties.

<<Integrated>>

Market party becomes responsible for construction and maintenance.

E.g. E&C, D&C, or DBM.

Part of contract is performance based (e.g. energy performance).

Involvement of client is limited

to reference design. Market

challenged to provide optimal

solution.

Table 2 The overview of the two potential procurement strategy for CSO Housing projects.


3. Review of ESCO Contracts for Retrofitting

The definitions of energy services, energy efficiency services and of an ESCO company vary from country to

country. There have been strong efforts to unify the meaning and develop a common terminology and taxonomy at least

within the European Union. Indeed the definitions and concepts have closed up significantly since a few major initiatives

have taken place, including:

- the relevant Directives (Energy Services Directive, 2006/32/EC and the Energy Efficiency Directive

2012/27/EU),

- the EU-wide projects, such as EUROCONTRACT3, ChangeBest54, Permanent5, FRESH6, EESI7,

Transparense8, etc.,

- EU-level initiatives, such as the Energy Performance Contracting Campaign (EPCC)9, and finally

European10 and national standards regulating certain aspects of energy services, including their definition11.

Energy Service Companies (ESCOs) and the related markets have been present in the energy efficiency improvement

sector in Europe since the 1800s. The concept and the applied models have been constantly changing and when they

3 From 2005 - 2007 EUROCONTRACT served as a platform and a network to exchange on current issues around Energy

Performance Contracting. It was a precursor of EESI, and its materials and tools are found on the EESI website at: http://www.european-energy-service-initiative.net/eu/toolbox/eurocontract-toolbox.html

4 http://www.changebest.eu/

5 Performance Risk Management for Energy Efficiency Projects through Training, http://www.permanent-project.eu/

6 Financing energy Refurbishment for Social Housing, http://www.fresh-project.eu/project/

7 European Energy Service Initiative, http://www.european-energy-service-initiative.net/

8 Increasing Transparency of Energy Services Markets, http://www.transparense.eu/eu/home/welcome-to-transparense-project

9 The campaign consists of targeted capacity buildings seminars. Furthermore, training materials, guidance documents and

best practice examples are available and shared. The campaign is progressively rolled out at the national level (in co-operation

with EPEC), regional level (through the ManagEnergy Initiative) and local level (via the Covenant of Mayors). See more at:

http://ec.europa.eu/energy/efficiency/financing/campaign_en.htm

10 NEN EN 16001 ‘Energy Management Systems – requirements with guidance for use”; NEN EN 15900 ‘Energy Efficiency

Services – definitions and requirements’; CEN/CLC TR 16103 ‘Energy Management and energy efficiency – Glossary of

terms’; EN 16212:2012 ‘Standard on top down and bottom up methods of calculation of energy consumption, energy

efficiencies and energy savings’; EN 16231:2012 Energy efficiency benchmarking; etc.

11 See alternative definitions used by a number of publications and sources in Annex I.

http://www.european-energy-service-initiative.net/eu/toolbox/eurocontract-toolbox.html


spread to different countries, they were naturally adapted to local conditions. This has resulted in a varied palette of

ESCO-type offers by now.

Until the 1990s, ESCO projects were scarce in most countries with only a few and used in only a few countries.

However around the early 1990s different ESCO models appeared in previously virgin areas, meaning geographically

and sector-wise. The earlier supply side solutions found their way to building refurbishments, industrial processes and

motors, recently even into transport.

In spite of the continuous development and the recently significantly increased market and political attention, so far

ESCOs have been confined to niche applications (M. J. Hannon), and have traditionally participated only in a small

percent of the renovations. Their role of ESCOs in energy efficiency is acknowledged as one of the key (policy)

instruments; however they should be seen as much more than that. ESCOs provide environmental, social and

economic benefits. They save money by saving energy, but they also produce value by increasing the value of the

buildings (and thus the renting/sale prices). Not least important is their crucial position in being able to create a

community, establish public places, share common aims. Indeed, ESCO projects provide a solution to the problems with

aging buildings, just as much as to the energy problem.

At the same time, ESCO services perfectly fit into the concept of “Performance Economy”, which goes beyond energy

and thus carbon-emission savings, and can be considered as a “product service system” (PSS) (J. K. Steinberger). PSS

is a “system of products, services, networks of actors and supporting infrastructure that continuously strives to be

competitive, satisfy customer needs and has a lower environmental impact than traditional business models.” PSS,

therefore, means a swift move from production oriented economy towards a service based economy, which is based

primarily on sharing of goods at the user level (several users own a product) or between the provider and the user

(provider rents out or otherwise user outsources) (R. Vreeken)

However, these attempts are partially overwritten by certain factors. First of all, the features of contract types are not

carved in stone and the borderline between them is not clear-cut. We should rather consider different ESCO

contracts as variations where the extremes largely differ from each other, but between these extremes there is a

continuous line. Furthermore, ESCO and ESCO project is understood differently in different countries because of the

traditions of the market. For instance, “Chauffage” is well-understood in most of the EU countries, however it is called

“Contract Energy Management” (CEM) in the UK and Ireland, where the term ESCO starts to be known only recently),

and “Heat Service Contracts” in the Italian context (A. Marino). Finally, the interest of individual companies may lie

with referring to themselves as ESCOs even when their product does not fully correspond to the general model.

Therefore, it is important to understand the differences and similarities between the currently existing models, taking into

account that overlaps and development of the individual markets, as well as the maturity and changes of the given

model require that we think of these business products as fluid and flexible, furthermore adaptable to the specific needs

of the individual projects. When a potential customer makes a decision whether to engage in a project and contract an

“ESCO”, they have to ensure that their understanding of the contract is the same as that of the contractor (ESCO) and

other players, if any (bank, grant provider, etc.).


At the same time, it is crucial to continue to strive for a universal definition and clear definition of at least the main types

of ESCO contracts, in order to ensure that clients get what they expect to.

- Clarification with the definition of the ESCO

There is a growing tendency to agree on what one can call an ESCO. In recent years, due to the changes described

above,

An ESCO/ESCO project is defined as an offer of turnkey service, which results in energy savings (with supply side,

demand side or combined solutions), at the premises of the client, and when the ESCO is involved in the risk sharing by

guaranteeing at least part of the energy or cost savings through linking its remuneration to the success of the project.

Not all parts of this explanation are applied in all countries, nevertheless there is a transformation seen on the European

market towards using these meters to decide whether a project is a real ESCO project. In the past, it was much less

evident.

While quality is not ensured just by employing an ESCO instead of standard suppliers, it is important that the ESCO has

an inherent interest to take care of quality assurance at the construction site and perform proper maintenance.

- Energy services and understanding the boundaries

As a start, all energy efficiency contract types are compared to the currently existing dominant energy contracts, i.e. the

Standard Energy Supplier business model. Under this model, the utility sells energy to the customer, who uses this

purchased energy based on his knowledge, his preferences and technical options to produce energy services (light,

motion, heat, cold, etc.) for himself. The provider is interested in selling as much energy as possible, and there is no

incentive for energy savings at either side. The risk of any conversion and usage lies with the client.

Other standard and non-guarantee based contracts include: facility management, maintenance contract, equipment

purchase and/or operation, outsourcing energy supply, etc.

On the other hand, the concept of “energy services” is a very wide notion, and it refers to “an energy related service

that improved energy efficiency” (D. Wargert). Energy services can be of simpler forms, such as invoicing services

with energy statistics, or of a more comprehensive character.

Energy services may be understood as a modular service, whereas one or more of the following activities are offered to

the client and the set of activities included in the contract is tailored to the specific needs of the customer and of the

given project. Accordingly, energy services can embrace (P. Bertoldi and S. Rezessy).

energy analysis and audits,

energy management,

project design and implementation,

maintenance and operation,

monitoring and evaluation of savings,

property/facility management,


energy and/or equipment supply,

provision of service (space heating/cooling, lighting, etc.).

Therefore it is important to start with setting the lines between “real” ESCO projects, Energy Contracting, Energy Supply

Contracting and Energy Performance Contracting. Only after this, we should compare the different types of ESCO

contracts in more details.

Energy Contracting offers the service instead of the physical energy itself, and depending on the involvement of the

ESCO and the product sold, we differentiate Energy Supply Contracting (ESC) and Energy Performance Contracting

(EPC). Simply put, ESC sells useful energy (MWh), whereas EPC sells energy savings (NWh: where the N stands for

Nega – denoted for savings) (See Figure 8).

Figure 8. The content of different energy contracts along the energy value chain. Source: (J. W. Bleyl and D. Schinnerl)

3.1 Energy Contracting

Energy Contracting (EC), as opposed to a Standard Energy Supplier Contract, includes a motivation for energy

rationalization stemming from the deeper involvement of the contractor, for example by overtaking

management/operation or sharing risks in a renovation project, etc.

According to Graz Energy Agency (J. W. Bleyl-Androschin and R. Ungerböck), Energy Contracting is

“the physical benefit, utility or good derived from a combination of energy with energy efficient technology and/or with

action, which may include the operations, maintenance, and control necessary to deliver the service, which is delivered

on the basis of a contract and in normal circumstances has proven to lead to verifiable and measurable or estimable

energy efficiency improvement and/or primary energy savings”.

Under an Energy Contracting, the ESCO can offer a number of interrelated energy services specific to energy savings.

The modules are combined according to the needs of the project and the requirements from the client (See Figure 9).


Figure 9 The setup of an Energy Contracting construction. The ESCO may offer all or some/one of the services and know-how. Source: (J. W. Bleyl-Androschin and R. Ungerböck)

Therefore all the below business models can be considered as a form of Energy Contracting. Nevertheless, note that an

ESCO contract may also include traditional supplies, e.g. energy supply. Relations within the energy contract types are

shown in Figure 10.

Figure 10 Types of energy contracts, including traditional relationships (on the right) vs. selected types of Energy Contracting, i.e. ESCO-type contracts.



Looking at those Energy Contracts that are not Energy Supply Contracting the benefits for the client lies with the more

active involvement of the supplier in the energy management, which

liberates human and financial resources for the client;

the motivation of the supplier and the client is in accord, i.e. both aim at energy savings;

contracts are simple and general, easy to understand and decision-makers are more willing to get involved

than in more complex ESCO contracts;

simple accounting, no need for verification and measurement know-how and technology;

it is not necessary to commit to long-term contracts.


Given the simple formats and the lack of energy saving targets, Energy Contracting carries major disadvantages for the

clients, including:

no energy efficiency/saving target, and therefore energy savings may not occur and/or are not accountable;

energy cost savings may be reaped by the contractor and not the client;

the client may have to/want to lay off personnel that was previously responsible for energy management.

3.2 Energy Supply Contracting

“Energy Supply Contracting” (ESC) has a number of denominations, including “Delivery Contracting” (DC), Supply

Contracting, or Contract Energy Management (CEM)12. An ESC is comparable to district heating or cogeneration supply

contracts (R. Vreeken).

The essence of an ESC is the outsourcing the energy supply in the form of supplying a set of energy services (such as

heating, lighting, motive power, etc. (A. Marino), (P. Bertoldi and S. Rezessy), and typically as an additional service

attached to the sale of an equipment or installation, such as a new boiler, a CHP unit, and other primary energy solution

(EnergoBanking Kft.).

ESC is one of the two main alternatives within Energy Contracting (as opposed to EPC – see below), and means the

sale of energy services in the form of MWh-s (R. Vreeken), which is the basis of monitoring and payments. The ESCO’s

role practically lies with the purchase/production and resale of fuels or other forms of primary energy in the form of

services. Besides these the contract may entail financing, planning, installation of the energy producing

equipment/installation or taking an existing equipment over from the client, operation and servicing, fuel purchase

(EnergoBanking Kft.).

12 CEM may be matched with the meaning of ESC or Chauffage


The scope of energy end-use efficiency measures is usually limited to the energy supply side of the building, e.g. boiler

room. It can also be applied to energy supply from renewable, like solar photovoltaic or solar thermal energy (J. W.

Bleyl-Androschin and R. Ungerböck).

The client pays a fixed fee, which includes the cost of the fuel, the outsourcing of the equipment/installation and billing.

This fee is lower than the client’s costs before outsourcing.

Contract Energy Management (CEM) is the term used in Ireland and UK to mean ESC and in particular, typically used

for “Chauffage” contracts. CEM is perceived as “the managing of some aspects of a client’s energy use under a contract

that transfers some of the risk from the client to the contractor (usually based on providing agreed ‘service’ levels)” (P.

Bertoldi)


Not relevant, because the CSO client is not directly involved.


Not relevant, because the CSO client is not directly involved.

3.3 Chauffage

Chauffage, one of the most common and surely the oldest contract types in Europe, is a form of Delivery

Contracting/ESC. It originates from France and it remains the most widespread contract type there, while it is also

popular in Belgium, Italy (where it is referred to as Heat Supply Contracts), Spain, and Central-Eastern Europe, etc.

Under a Chauffage contract the ESCO takes over the complete responsibility for the provision of an agreed set of

energy services. As a result, the ESCO will manage all supply and demand efficiencies. The ESCO guarantees the level

of the service, however does not promise an energy efficiency investment at either the supply of demand side. Energy

efficiency improvement will be done based on the consideration of the ESCO, in order to ensure his own profit and

create energy savings (P. Bertoldi), (I. F. C. IFC). The ESCO may or may not also take over the purchase of fuel and

electricity (I. F. C. IFC).

The fee for the services is normally calculated based on the client’s existing energy bill minus a certain level – often

expressed as percentage – of (monetary) savings, with a guarantee of the service provided. In this case, clearly there is

a guarantee of the monetary savings for the client irrespective of the energy efficiency investments (if any) (P. Bertoldi

and S. Rezessy) (I. F. C. IFC). Alternatively, the customer may pay a rate, for instance, per square meter (P. Bertoldi

and S. Rezessy).

As seen above, Chauffage includes a strong motivation (for the service provider) to create energy savings through

improving the efficiency of service provision, but this is probably confined to the energy production and boiler parts of

the system.


- The modular model of Chauffage

Chauffage contracts exist in many forms, especially in France. Typically there are 4 variants, referred to as P1, P2, P3

and P4. These 4 alternatives are associated with different prices, different VAT rates, and the distribution of the invoice

between owners and tenants or occupants in accordance with the law, and finally the length of the contract, the share of

costs between the ESCO and the client, and the level of guarantee (A. Marino), (B. Duplessis), (B. Boza-Kiss and P.

Bertoldi). The four types of contracts are modular formats of energy services, each step adding additional services

compared to the previous one (B. Duplessis), (J. Leroy and L. Chanussot).

• P1: fuel supply without explicit obligation for energy savings and guarantees;

• P2: daily operation and also operation services (tuning, advice, etc.);

• P3: full maintenance, including major repairs and the supply of materials, where an energy efficiency improvement

comes from the prompt replacement of malfunctioning equipment;

• P4: a complex energy efficiency improvement contract, with a focus on the purchase of new equipment.


The key advantage of a Chauffage contract from the clients’ point of view is that there is no need for in-house energy

management, while a level of comfort/service is guaranteed by the ESCO. The service is generally additional to an

energy equipment purchase. Furthermore:

an agreed comfort/service is received for a fixed fee; generally lower than the original energy bills

it is easy to compare offers, whereas the contract is very specific in regards the details such as fee, service

received (e.g. temperature in a given area), and therefore the decision-making of the client is easy;

monitoring and verification of the service is rather straightforward and requires only simple methods and

technologies;

the contract is usually drawn up for a relatively long-term, during which the fee will not change (unless

stipulated in the contract), even if energy prices increase.


The main disadvantages of the model lie with those functions that also provide the benefits, such as:

energy cost savings are reaped by the contractor;

the fixed fee payable by the client is not foreseen to decrease even if energy prices decrease or if major

energy cost cuts are achieved

3.4 Build-Own-Operate-Transfer

Build-Own-Operate-Transfer (BOOT) contracts involve the designing, building, funding, owning and operating an

installation (usually CHP or other energy production facility, often in a decentralized way) for either a pre-defined period

or until all the costs are repaid. After the contract ends, this ownership (and thus responsibilities and risks) are

transferred to the client.


This model resembles a special purpose enterprise created for a particular project. Clients enter into long term supply

contracts with the BOOT operator and are charged for the service delivered similarly to Chauffage contracts. These

service charges include capital and operating cost recovery and project profit (P. Bertoldi and S. Rezessy). BOOT

contracts also resemble leasing agreements, however the client is free of operation and ownership issues until the end

of the contract. BOOT has been popular in Ireland, Portugal, Spain and some small markets, such as Slovakia and

Lithuania.


This contract is very similar to the Chauffage contract and therefore the benefits and disadvantages are largely the

same. The key difference is in the ownership of the installed equipment. In a BOOT contract the contractor maintains

ownership, which has the following advantages for the client:

the technical risks of the installed equipment remain with the contractor, as the owner of the technology;

low liquidity of the client is not a barrier, because the contractor pays for the equipment.


it may be difficult to influence the type of equipment installed by the contractor;

raising external finance for the project might be hard for the client because the materials and installations

cannot be used as collateral;

in case of disagreement/cancellation of the contract it will be very difficult to settle ownership (or disassembly)

of the installed equipment, which may be already fitted to the local conditions, therefore the contractor cannot

use it elsewhere, nevertheless the contractor will not be willing to leave it in the place “for free”.

3.5 Energy Performance Contracting

Energy Performance Contracting (EPC) is the real area for ESCOs. EPC has been gaining large popularity, mainly due

to the changing market conditions and requirements by clients, as well as due to political commitment (see the overview

of EU policies and programmes – these all support EPC above all other ESCO contract types).

The central part of an EPC is energy rationalization on a guaranteed level, usually on the demand side, though may be

on the supply side, or on both (EnergoBanking Kft.). EPC is “a form of ‘creative financing’ of energy efficiency

investments, which allows funding energy efficiency upgrades from cost reductions (P. Bertoldi and S. Rezessy). Thus,

as opposed to ESC, an EPC is about selling “negawatthours”, NWh instead of MWh (D. Wargert), (J. W. Bleyl-

Androschin and R. Ungerböck).

The key features of an EPC include the transfer of technical risks from the client to the ESCO based on performance

guarantees given by the ESCO. The ESCO’s remuneration is strictly linked to the demonstrated performance. The

contract may be agreed for energy or cost savings or even the level of energy service. Furthermore, if needed by the

client (i.e. usually), the ESCO provides a turnkey solution, thus operates as a one-stop-shop, where the client does not

need to worry and keep in contract, monitor quality of the subcontractors. These are done by the ESCO itself.


EPC is a means to deliver energy performance improvements when there is a lack energy engineering skills, manpower

or management time, capital funding, understanding of risk, or technology information. Cash-poor, yet creditworthy,

customers are good potential clients for EPC (P. Bertoldi and S. Rezessy).

EPC-projects realize demand reduction measures that typically comprise building technologies like heating, ventilation,

air-conditioning (HVAC), lighting, electrical applications and control systems. In most cases, building construction

measures such as building envelope refurbishment or passive solar shading measures are excluded (J. W. Bleyl and D.

Schinnerl). EPC is used only for existing buildings (EnergoBanking Kft.).

There is a large number of benefits of an EPC as compared to other solutions, e.g. own implementation or regular

tendering. These were collected by (B. Boza-Kiss and E. Grosser Lagos, 2007):

reduction of operating costs;

facility improvement, including the increased value of the premises/buildings;

outsourcing of non-core activities to focus on mission;

simplicity of having a single source provider;

alternative source of facilities funding—budget relief;

access to systems experts and partnership with ESCO;

code compliance;

risk management;

potential access to capital;

guaranteed performance;

value-based solution;

accountability over the term of the contract; and

environmental benefits.

The customer benefits of participating in an EPC are (D. Wargert):

To save money/energy

Refurbish old facilities

Improve comfort, heating/cooling, ventilation, lighting

Improve neglected maintenance

Improve long-term competitiveness


There is one significant benefit of Energy Performance Contracting for the client as opposed to the simpler models of

Energy Supply Contracting, which is the guarantee of energy savings by the ESCO. As a result:

the client is ensured to achieve energy savings and as a consequence either energy cost savings or

comfort/service increase;

the client may participate without providing initial financing

there are many subcontractors involved, but they are managed by the ESCO.



EPC is more complex than previous models and it may prove more difficult to trust by the clients. The win-win approach

is – to say the least – suspicious in markets which are not experienced in similar ideologies. The complex contracts

naturally carry the risk of misunderstandings, need for more experienced contracting/financial personnel and later

monitoring and verification procedures and thus knowledge on the client’s side, too.

3.6 Shared savings model of EPC

Under a shared savings contract the savings (as calculated from the baseline energy consumption set out in the

contract) are split according to a fix pre-arranged percentage (e.g. 80-20% between the ESCO and the client). There is

no ‘typical’ split of savings, it depends on the business traditions of the ESCO and the agreement between the client

and the contractor. It has been reported that the safest split if 50-50% in order to increase client satisfaction and trust.

However, if the risks taken are especially unbalanced, this may be reflected in the share of profits (Energy Charter

Secretariat).

Typically the ESCO finances or arranges the financing of the project. In principle, all the savings are shared according

to the predetermined percentage, however it has become common recently to include a non-binding savings guarantee,

in order to show that the expected energy savings will be able to cover the investments during the project period. It is

also possible to use the additional savings to reduce the contract period.

The ESCO and the client share risks and profits, too, under this contract type (A. Marino), (EnergoBanking Kft.).

Figure 11 Cash flow and risk sharing between the ESCO and the client. Source: (D. Wargert).

As a result of the features of the shared savings model, the ESCO has to take on both the performance risk and the

financial risk. Furthermore, the ESCO has to deal with another important risk, that is that the customer could go

bankrupt, in which case the energy savings will effectively stop paying back and will result in a loss for the ESCO. Due

to the higher risks, the ESCOs tend to select measures that are “safer”, and pick the “low-hanging fruits”. Therefore,

comprehensive projects are rarely done with shared savings (D. Wargert), (P. Bertoldi and S. Rezessy), (Energy

Charter Secretariat).

Because the ESCOs finance the project, shared savings models are offered only by financially very strong ESCOs (D.

Wargert) and/or a suitable support from the financial sector. These EPC projects are generally large. The ESCO may


have a problem with becoming highly leveraged if several projects are taken on board, and will be hard to acquire new

bank loans.

A shared savings model can result in longer contract times compared to guaranteed savings (for an identical project)

because the ESCO does not get paid for its services at the start of the project but is instead remunerated during the

course of the contract period. So to cover up their costs and profits they might need a longer contract time because the

remuneration is slower (D. Wargert), (Energy Charter Secretariat).

If the shared savings model is popular in a market, it also means that smaller ESCOs cannot easily enter the market,

and market growth is limited. On the other hand, this model is well-suited for customers with limited financial capacities,

and therefore in developing markets. An important benefit for the customer with shared savings is that they will benefit

from the savings from day one, in spite of the fact that the investment is done by the ESCO.


Both the advantages and disadvantages should be compared with those of the guaranteed savings models. In general it

can be said that the shared savings model is more common in beginner markets. The benefits include:

simpler model;

no need for credibility of internal funds;

pays from day 1;

the contract involves a fixed pre-arranged percentage of income share;

better suited for customers with limited financial capacities;

more risks are taken over from the client (such as performance risk and the financial risk).


ESCOs are not interested in more “risky” projects, and prefer to reap the low-hanging fruits and avoid small

projects;

projects are usually simple, include only one or few measures and comprehensive (e.g. complex

refurbishment) projects are rare;

contract periods are longer than those of the guaranteed savings models;

only few (large) ESCOs can offer the shared savings model, i.e. procurement may be difficult due to the low

number of participants.

3.7 Guaranteed savings model of EPC

Under the guaranteed savings model of EPC more risks are taken by the client. The customer takes on financial and

credit risk by providing the necessary funding for the project from its internal budget or by using third-party financing.

The ESCO issues an energy performance guarantee that can be used to support the judgment of the TPF. Due to the

guarantee, the ESCO has the performance risk. If the guaranteed savings are not reached the ESCO will compensate

the customer economically for the difference. This lowers the financial risk of the customer’s investment. If the savings

are higher than the guaranteed level, the surplus is usually shared between the ESCO and the customer according to a

predetermined split.


The benefit for the ESCO and on a societal level is that the ESCO is interested in packaging a set measures that are

more comprehensive on the long-term, because the ESCO is not involved in the financing and does not include its

capital in the project, as opposed to shared savings.

Figure 12 Cash flow and risk sharing between the ESCO and the client. Source: (D. Wargert)

From the market point of view the guaranteed savings model has two tricks. The ESCO clients have to financially

strong, at least to a level that they are able to get bank loans. Furthermore, this model assumes a mature market,

whereas the guarantee is trusted and financial institutions are able and willing to provide bank loans.

BOX 1. Self-organised Community ESCOs

A complex, urban district level retrofitting model was developed in Hungary in 2005 and has been tested and retried

since then. The Energy -Saving and Financing Balance System (EBS) offers the residential community of a building or

a set of building blocks an innovative co-financing solution based on the energy savings guarantee issued by an ESCO

to achieve deep renovation and an increased comfort level. Since 2005, over 1400apartments have gone through a

complex energy performance renovation, resulting in 45- 70% energy savings. Further projects have been started to

adapt the pilot. An important new element in the further adaptations of the model is that the ESCO urges the

residential communities (condominiums or the housing associations) through trainings and discussions to take over

and learn the operation of the renovated buildings after the project. Ideally, this could develop into a Community

ESCO, where the housing association (probably represented by an elected body, incorporating the common

representative, an employed engineer and few residents) would be in charge of the whole project, including planning,

operation and maintenance of the energy systems, managing the ESCO co-financing and the financial controlling and

accounting. This could be aided by an external ESCO if needed, which would give know-how and assistance when

needed.


The benefits of the model should be compared to those of the shared savings EPCs:

the ESCO bares the performance risk due to issuing a guarantee that can be used to receive bank loans or

other third-party financing;

if the guaranteed savings are not reached the ESCO will compensate the customer economically for the

difference. This lowers the financial risk of the customer’s investment.

the surplus is usually shared between the ESCO and the customer;



The following disadvantages should be considered by the clients:

more risks are taken by the client, taking financial and credit risk by providing the necessary funding;

ESCO clients have to be financially strong, at least to a level that they are able to get bank loans

3.8 Integrated contract model

Integrated Energy Contract models (IEC) is a response to the situation when various business areas of a client seem to

conflict. For example, when a utility (aiming to sell more energy) enters the energy efficiency market and would like to

invest into the demand side aiming to reduce energy consumption. The credibility of such a company will be low with the

potential customer’s stand-point.

On a market basis, a company starts to offer demand side projects if they realize that the fee for providing the energy

service can be larger than the loss of remuneration from the selling of the same amount of energy (especially when

taking into account that a large portion of the energy price consists of energy tax, VAT and network charges).

If the supply side is included into the EPC project in addition to demand side measures, it can be considered as an

integrated EPC.

Including the supply side into an EPC project creates an incentive to develop smaller supply-facilities, and run that as

optimally as possible, and combine the optimization of the supply facility with the energy consumption rationalization of

consumers.

This actually results in a district level approach, when a project should focus on not only one building or facility but

bundle the energy performance improvement of all those premises that are linked through the energy production

installation and its network.

The better the performance of the whole district, the higher the remuneration will be (in the same way as with demand

side measures). The energy is not measured and sold on the basis of how much is produced on the supply side. The

energy consumption is instead measured against the baseline and the remuneration for the ESCO is based on the

savings performance and not the amount of energy produced. This simply means that there is a strong incentive to run

the supply side as efficient as possible and producing as little energy as possible (D. Wargert). In effect this model

combines EPC and ESC (J. W. Bleyl).


The IEC is the EPC model most adaptable to local conditions. The benefits for the clients include:

simpler contracts, tailored for the needs of the clients;

adaptable for both small and large projects;

long-term projects can be also done, with high profits, while ability to carry out comprehensive and deep

renovations;


combination of EE and RES measures is more easily possible;

quality and integrity assurance by the ESCO.


IEC is a new model. Its simplicity is both its advantage and disadvantage because it can be easier to accept by

decision-makers, however it may leave open more questions.

Being a new model, it has not been tested excessively, and not enough is known about its successes or problematic

features. As a result, the contracting parties take more risks related to legal circumstances.

3.9 Critical Appraisal

These models presented above are not better or worse than the others, instead they serve different purposes and are

suitable to different market conditions. Problem may arise when a given model is promoted in a market structure that is

not perceptive of this, for example, when EPC is offered to clients with own in-house technicians who have high level of

education and experience to organize and manage a highly professional renovation and even more the client has

enough equity to finance the project. In this case, it will be probably cheaper and smoother to carry out the project on

their own.

Figure 13 Level of development of different forms of energy related offers and Energy Contracting models. Source: (D. Wargert).


Table 3 The overview of the existing contracting types for the CSO housing clients’ process and project requirements.

Co

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cap

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Easy

co

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Incl

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Ab

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Dir

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Par

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deg

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esig

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Par

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Incl

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Acc

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SMEs

Incl

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En

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Val

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Sho

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Lon

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Ab

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Energy-saving contarcting ++ - - + - N/A ++ - + - N/A - + ++ + - -

ESC ++ - - -- N/A N/A + - ++ + N/A - N/A N/A ++ ++ N/A

Chauffage + + - + + N/A + - ++ + + + ++ ++ ++ + ++

BOOT ++ - - - - - + N/A + + + + ++ ++ + + +

EPC + ++ + + + + + + ++ + ++ ++ + + + ++ ++

EPC Shared saving + ++ + + + + ++ + + + ++ ++ - - + + +

EPC Guarantee Savings + ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ + + ++ ++ ++

Integrated + ++ ++ ++ ++ + + + ++ + + ++ + + ++ ++ +


Table 4: overview of key features of business models for retrofitting CSO housing projects (ENR).


Is it possible to achieve a comprehensive refurbishment? 3.9.1

ESCOs often do cream skimming, and go for the easiest and cheapest projects (i.e. those with the lowest payback

times). For example, a comprehensive refurbishment approach to buildings – i.e. examining and treating all energy

sensitive aspects - is frequently not aimed at (J. W. Bleyl and D. Schinnerl). On the other hand, the social benefits

significantly increase when comprehensive or deep-renovation is carried out. With too shallow-renovations, large saving

potentials are neglected in the refurbishment process and they cannot be tapped until the next building refurbishment

cycle comes some 30 years later (J. W. Bleyl and D. Schinnerl).

There needs to be a differentiation in what kind of additional renovation is done. This will also influence the solution and

whether the whole package may fit in a project guaranteed by an ESCO.

1. A comprehensive renovation may mean a shallow energy renovation that is combined with aesthetic or quality

additions, such as painting, extending a house or building, changing its usage, restructuring the building plan,

etc. These additional renovation modules will require significant investments, but do not produce energy or

other resource savings – on the other hand, probably mitigate some/all of the energy savings. Naturally, the

energy renovation part of the project may be able to finance itself from the future energy cost savings; however

the other modules need additional financing. These will normally come from the clients internal funds, and

done in order to increase comfort, aesthetics, but even the value of the building – depending on the nature of

the changes. Using internal funds is appropriate because the additional benefits will be enjoyed only by the

owner/user.

2. Another form of comprehensive renovation may entail a significantly larger energy renovation than the

optimum according to regular calculations. In currently accepted calculation methods, the optimum level of

investment is usually an underestimation because of a conservative energy price development forecast,

because of technical and time limitations and the fear of taking risks. However, it would be important to aspire

for renovations that could result in even 80-90% of energy savings, instead of the typical 10-30%.

BPIE has conducted a modelling exercise where they compared the net savings to consumers in case of different levels

of refurbishment (i.e. the difference between the present value investment and energy cost savings). They found that

carrying out a renovation in two steps provides the highest individual benefits, however a deep renovation will result in

the highest savings (i.e. highest social benefits) (M. Economidou).

Figure 14 Cumulative (lifetime) energy and financial savings in building renovations of different depth. Source: (M. Economidou).


Obstacles to deep renovations include the absence of full cost calculations, no integrated planning, too long payback

periods of the energy efficiency investment measures, procurement problems or a lack of knowledge on implementation

models are some of the reasons behind (J. W. Bleyl and D. Schinnerl).

There are several ways to encourage deeper renovations through ESCO projects. As seen above, the guaranteed

savings EPC model innately results in a more comprehensive package of measures, but requires a more mature market

and client sphere and policy system. The IEC model goes even further.

Table 4 summarizes the key features of the discussed business models.

Deep renovations could be encouraged by properly designed policies, whereas strict standards and a strict system of

energy certification system requires a higher level of renovation. Incentives should be given to projects that go well-

beyond the minimum requirements, and the public funding should cover not the part that is anyway economically

feasible, but all the investments and risks above.

The question remains: What kind of ESCO construct could ensure socially more advanced projects (deep

retrofits that take into account district level renovation)? How could the co-benefits, especially the quality of

living conditions, social integration at the micro level (e.g. because of the establishment of small district

structures), and especially the clearest benefit of increased renting and selling prices by considered in the

calculations of an ESCO project optimization. Could these ensure 80-100% energy saving results?

Potential Procurement Strategy based on ESCO contracting for Retrofitting 3.9.2

ENERGY SAVING GUARANTEEING MODEL

Energy Performance Contracting (EPC) is the organizing and regulating tool of the application of ESCO models. This

element is what differentiates the EPC from all other contracting solutions for energy efficiency. It establishes and

regulates contracting relations between stakeholders concerning the baseline, the energy-efficiency aims and tools, also

the methods of achieving the targeted performance and the ratio and ways of risk-sharing between the stakeholders.

Therefore the EPC’s effectiveness depends on the possibilities of the applied technological solutions, users

collaboration, regulation and monitoring of the building energy systems. Moreover, essence of the EPC is that its

effectiveness directly determines the success of the investment, the applied comfort parameters and related costs and

not at least the financing possibility of the project.

This contractual relation is essentially different from the previous contract solutions. In this case the User is independent

and associates as an equal partner with public and private sector actors in order to represent its own interests and

goals. Public-User-Private partnership can be an important tool in the development of today’s performance-oriented

society.

EPC should meet at least the following requirements to fulfil its mission.

Balanced relationship, where benefits and results are distributed between partners in proportion to the

undertaken risk and financial contribution.


Objectively established relationship: the Baseline is the alpha and omega of the EPC. Considering that

performance and efficiency of building energy systems are influenced by stochastic processes that are difficult

to predict, the most exact definition and verification of the baseline and the impact of the retrofitting is key

factor of achieving the energy-efficiency goals.

Energy efficiency’s mission in society: aim of energy use in buildings is to provide the various comfort

conditions for Users that are needed for optimize their life functions and conditions. These parameters form the

concept of Indoor Air Quality (IEQ). Minimum requirement of energy-efficiency is to guarantee at least the

minimum level of IEQ to the users and provide the highest possible level of comfort using as little energy as

possible.

Homogeneous contracting system: type or model contracts need to be developed for ESCO activities in EU,

especially for main contracting, financing organization and Operation and Maintenance activities.

Figure 15 shows the most important elements of the ESCO-based retrofitting process.


Figure 15 Overview of ESCO based retrofitting process (ENR)


Scheme of the two proposed model types 3.9.3

The chapter describes 2 types of contracting model for CSO housing retrofitting investments:

A. Community ESCO (COMES) model

COMES is based on an ESCO formation which is organized on a voluntarily basis on the Energy-Efficient Retrofitting

Area (ERA) for the district level coordination and promotion of energy-efficiency measures. Initiators of the

establishment of such an organization and supporting partners could be:

Owners’ communities

Local municipality or municipal organization

Civil or professional associations

Financing funds and institutions

Local SMEs

Technology suppliers

Energy suppliers

Infrastructural organizations

State institutions

The COMES assumes a facilitator role between stakeholders of energy-efficiency projects on the level of city districts

in order to make the energy-efficiency processes of residential (and also other type) buildings optimal in short and long

term.

Coordination and service areas:

Legal advisory and procurement

Entrepreneurship development consultancy

Energy-efficiency consultancy incl. application writing services

Development of infrastructure

Regional and local authorization procedures

District level city development

Energy-efficiency project development and optimization in district level

Supporting services for retrofitting projects (temporary storage, transportation, containers, scaffolding

equipment, temporary housing for tenants)

Financing organization and consultancy

Insurance services

COMES provides its services for success fee/profit share, except for those that are free for communities due to public

interest. Costs of the latter can be covered by state or local government sources.


Figure 16 COMES model, an ESCO based retrofitting model.

Abbreviations:

COMES: Community ESCO

MI: Municipal institutions

IC: Infrastructural Companies

FI: Financial Institutions

CGI: Central Government Institutions

ESC: Energy Supplier Company

TSC: Technological Supplier Companies

NORG: Non-profit Organizations

SO: Supporting institutions/organizations

ERA: Energy Efficient Retrofitting Areas

ESCO: Energy Efficiency Services Companies


B. ESCO energy saving guaranteeing model (building level)

Advantages of an ESCO guaranteeing model are clearly shown in the ESCO review (Boza-Kiss, Benigna and Grosser

Lagos,Enrique. 2013. Energy Service Companies in the EU - market description and overall trends. Review document

under the Proficient project. Budapest: EnergoSys Zrt.) compared to the direct “third-party financing”, so in this report

we only focus on the development of this model for financing and realizing deep retrofitting projects of self-organized

communities.

Basic element of the ESCO guaranteeing model is that the ESCO guarantees energy savings based on the baseline

and the retrofitting program in short and long term (5-15 years) for covering the loan payments and O&M costs of

energy systems. Guarantees are applicable for:

specific yearly energy consumption of the building (kWh/m2year)

capacity of certain energy systems (tower or thermal) i.e. the contracted energy saving calculated on the

basis of the baseline and expected impact of retrofitting measures (kW)

predicted energy consumption and energy savings compared to the baseline: kW/year, GJ/year

predicted financial savings from energy consumption and performance: EUR/year

guaranteed loan payment from energy savings (EUR/year)

structure of use of remaining energy savings (O&M, fee discounts, net income)

Guaranteed values are valid only when IEQ parameters that have been agreed with end-users are kept. It is common

that IEQ parameters are fixed based on the minimum requirements that are set out by designers according to legal

constraints.

Collaterals and guarantees of guaranteed performance are included in the EPC, e.g. bank guarantees, deposits,

retention (fee retention), insurance, product and equipment warranties, and other collaterals.

Figure 17 summarizes the general structure of the ESCO guaranteed model and Figure 18 shows the ESCO

guaranteeing finance contracting framework.


Figure 17 General structure of the ESCO guaranteed model

Figure 18 ESCO guaranteeing finance contracting

Contracting process 3.9.4

The dimension of time is also integrated into the contracting process. The district level and building level process

contracting is differentiated and described in the process:


DISTRICT LEVEL

a. community (re)organization: there are 3 points that the community organization is linked to in some way:

1. Area, Land Use

2. Infrastructure

3. Retrofitting process.

b. coordination tasks: carried out integrated to the process coordination

c. Facilitation tasks: legal advice, Sample contracts for ESCO, O&M, Energy Supply, etc.

d. Financing Facilitation tasks: Loan sample agreement, Advice

e. Possibilities of joint infrastructure and energy generation

BUILDING LEVEL

a. project foundation

b. contracts scheme development:

i. technological content at building level

ii. baseline

iii. financing scheme

iv. ESCO coordinator/supervisor: is also the main contractor in best scenario

c. baselining and verification by independent experts (both from community and ESCO)

d. procurement at building level: when several buildings are linked in some ways/in case of block of

buildings it is necessary to carry out the procurement process for each building/building unit separately.

Considering technology suppliers the ESCO can be the main contractor, but tendering is ideally done at

subcontractor level. Tenders are issued by the community and contracting is done for each

building/building unit separately.

At building level ESCO, two elements should be included in the contracts:

a. performance level (specific energy consumption): both quality and quantity

b. comfort parameters

The main contract includes how much energy saving does the ESCO guarantee comparing to the baseline:

1. energy saving is expressed in currency, and it includes operation and maintenance. O&M contractors are

tendered by the ESCO

2. collaterals and liability guarantees

3. set points of building services systems

4. verification and monitoring processes

5. risk-sharing: balancing risk sharing and energy saving flow


Structure and contents of EPC contract 3.9.5

1. Identification of contracting parties (including their liabilities and responsibilities)

2. Used definitions: i.e. EPC, ESCO services, baseline, energy saving, cost saving, contract term, retrofitting

investment, operation and maintenance, energy audit, energy losses, different energy-related terms,

guarantees, collaterals, loan (cash-flow based or mortgage loan), energy and other services fees.

3. Subject of contract: identification and objectives of investment and operation/energy management processes.

4. Start date, duration of contract and conditions of contract extension

5. Definition of baseline, targeted energy saving, performance and energy flow.

6. Retrofitting investment:

a. technological content

b. cost

c. schedule

d. payment conditions

e. obligations of contracting parties

f. professional liability insurance

g. product warranties

h. quality and quality control

i. delivery-acceptance

j. additional works

k. late penalties

l. deadlines

7. Financing

a. structure of financing, related loan contracts

b. ESCO co-financing

i. composition of energy saving use

ii. guaranteed loan payments

iii. guarantees and collaterals

c. obligations of parties

8. Operation and energy management

a. start date and duration of operation and maintenance services

b. setup of Indoor Environmental Parameters

c. set points of building energy services systems

d. baseline verification

e. accounting and billing conditions

f. service fees and payment conditions

g. use of energy savings income

h. financial statements

i. regular maintenance and failure scenario

9. Contract termination conditions (including attention for alternative conflict resolution routes)

10. Reference to the most relevant applicable energy and other regulations

11. Main related contracts: i.e. energy supply contract(s), loan contract(s), COMES cooperation contract, risk-

sharing contract(s) (insurance, collaterals, bank guarantees), grant contract(s), subcontracts and supplier

contract(s)

12. Other issues, incl. transitory and general regulations, general attention to educate and inform end users

(familiar with terminology, etc etc) and recording lessons learned for future up-scaling)


Corner points and conditions 3.9.6

1. Low-intrusive technologies

2. Best practice method and implementation

3. Dissect to sub-ESCOs

4. Regulations: economical, technical

5. Financing optimization

6. Trends of energy price and finance cost

7. Funding possibilities

8. Grant conditions

9. Scale of the project: building or district level

10. Type of energy management system: sensing, controlling and monitoring possibilities, incl. user interactivity,

data frequency (continuous online vs. periodic)


4. Selection of Contract Models Responding to the need of helping CSO housing projects in preparing and organizing their collective procurement

strategies, this chapter presents the concept of the “Most Economically Advantageous Tender” (MEAT) method of

performance-based procurement. Instead of CSOs procuring their projects based solely on the lowest-priced bidder,

this procurement method allows CSOs to reach their goal of achieving the highest “value for money” (VFM).

Choosing a mechanism for selecting the best procurement offer (bid) received in the bidding process is the logical step

following the selection of the most appropriate contracting forms for CSOs. Therefore this chapter aims to complement

the overall procurement process following the review of the existing contracting forms available (Chapters 2 and 3 for

new construction and retrofitting respectively) as well as the proposed CSO contract models. This approach should

provide CSOs with better knowledge of the procurement process they are undertaking and help them to award contracts

using innovative MEAT concepts.

4.1 “Most Economically Advantageous Tender” (MEAT) concept

The MEAT concept comes from public procurement procedures in practice in Europe since the nineteen nineties. For

example Directive 2004/18/EC (European Parliament, 2004) specifies:

Contracts should be awarded on the basis of objective criteria which ensure compliance with the principles of

transparency, non-discrimination and equal treatment and which guarantee that tenders are assessed in

conditions of effective competition. As a result, it is appropriate to allow the application of two award criteria

only: ‘the lowest price’ and ‘the most economically advantageous tender’.

Similar approach can be taken by private clients, such as CSOs, on how to better assess which of the received bids

provides the best value-to-price ratio for them.

The MEAT concept was originally intended to complement integrated contracting forms, such as “Design & Build” and

“Design, Build, Maintain and (optionally) Operate” (DBM, DBFMO), as reviewed in Chapter 2. This way the winning bid

provides the client with a flexible combination of the most optimal design and construction solutions amongst other

criteria besides the lowest price. However it is also possible to apply the MEAT approach with traditional “Design-Bid-

Build” procurement strategy as documented in the EC-funded PANTURA project (Sebastian et al., 2012).

MEAT Performance Indicators for CSOs 4.1.1

Assessing each bid using the MEAT method requires a set of key performance indicators previously determined by the

CSO. These indicators should reflect what the CSO’s main requirements are. In general performance-based

approaches need the procured service to fulfil three factors: quality, functionality and impact in order to obtain the

performance required (Mathews et al., 2007).


For CSO housing projects it is up to each project to define what their main requirements are and how important

achieving (and surpassing) them is for them as described in PROFICIENT’s D3.2: End-users’ performance

requirements and KPI’s. For example, for a particular CSO the project delivery time might not be as important as the

contractor’s guarantee of environmental protection; therefore the assessment of the bids should reflect those CSOs’

requirements. Another consideration could be taking into account the Life-Cycle Cost (LCC) analysis of the offered

solutions, which would give CSOs tools to decide which solution is most cost-effective during the whole life cycle of the

construction.

MEAT Evaluation and Award Process 4.1.2

There are three main mechanisms to evaluate a MEAT bid, namely a point system, a ratio system, and price correction

system (Dreschler, 2009). With a “point system”, all aspects of the offer (beyond the minimum tender requirements) are

translated into a pre-established scheme of points. The bid with the highest score is awarded the contract. The “ratio

system” uses an estimation of the total value (the sum of the basic value plus the added value) of each offer with

respect of the minimum tender requirements. The bid with highest value-to-price ratio is awarded the contract. And

finally in the “price correction system” the added value that each bid offers above the minimum requirements is

translated into monetary values, which is subtracted from the offered price. Thus the contract is awarded to the bid with

the lowest corrected price (Sebastian et al., 2012).

Applicability of MEAT to CSO projects 4.1.3

As it was described in Chapter 1.2 “Characteristics of CSO Housing Clients”, the members of CSOs are normally not

knowledgeable of the construction industry and can be considered non-professional clients (as opposed of professional

clients such as developers). With this in mind, it is possible that applying complicated assessment methods of

evaluation of offers (such as MEAT) might be a difficult task to carry out for themselves. However, as demonstrated in

some of the PROFICIENT case studies described in Chapter 6, the use of consulting advisors can help CSOs ,not only

with the selection of the right contracting strategies (i.e. which contracting form is the most suitable for them), but also

with establishing contract award criteria to select the best value-for-money bid. The characteristics of this advisor or

“CSO expert coordinator” are summarised in the following section.

4.2 The “CSO expert coordinator” (CSOEC) model.

In earlier stages of the PROFICIENT project, the need of and the roles of certain facilitators and experts have been

identified (D1.2 “Guidelines for participatory and concurrent design”). Indeed, the key issue to underpin in CSO housing

projects is the coordination of the decision making process and project requirements definition developed by the

participants. The internal governance rules are critical, but it is crucial to facilitate the translation of the functional

requirements to real design and the feedback regarding to technological options, constructability issues, cost


implications, contracting strategies, etc. In some cases, the community may have skills and internal resources able to

undertake this role, but as the complexity of the project increases, this alternative is less likely.

This model involves the CSO client engaging a “CSO expert coordinator” (CSOEC) through a competitive tendering

process to manage the overall design process, manage the construction process on behalf of the CSO, help the CSO in

the tendering process, and in case of ESCO and other energy contracting models reviewed in Chapter 2, help with the

selection process of the best service provider. The expert should also be able to guide the CSO into pre-tender

negotiations if considered necessary, as describe in the next section.

Candidates for the role of “CSO expert coordinator” must compete according to their experience in developing collective

self-organized housing projects. The experience of the candidates will cover all life cycle process including procurement

of construction works, maintenance and operation with emphasis in energy efficient performance and sustainable

projects.

4.3 Pre-tender negotiations

For developing CSO housing projects with optimal energy performance criteria it is possible to distinguish two types of

pre-tender negotiations in view of their different subjects of discussion, namely “market testing” exercises and “technical

dialogue”. The energy performance evaluation will be an important driver along the pre-tender process.

Testing the market: Primarily in early CSO schemes, so called “pathfinder projects,” we should start market

testing exercises. The CSO end users approach “key players” in the market and other potential participants to

ask for their interest in the CSO approach. This practice ensures from the viewpoint of the Community that

firms with a potential interest in the procurement know of the proposals before. Market testing provides the

CSO with the confidence that there is sufficient market interest in the CSO project and it is worthwhile to stage

competition. Moreover, after a formal market testing procedure the CSO is equipped with a more qualified

basis to render a conclusive judgment of the overall viability of proposed solutions in the respective market

and the scope of the individual project. What is more, the Community acquires thereby assistance in drafting

the project’s output specifications.

After informal consultations, the private sector can prepare itself for the new challenges posed on it by the

newly developed scheme. Advisers can be consulted on how to prepare for the CSO procurement procedure

and possible partners for the creation of consortia can be sounded out. Hence, it is feasible to conclude that

both participants to this consultation exercise and the community benefit from market testing. It appears

arguable that informal consultations on the viability of a project scheme do not provide the prospective

participant with a competitive advantage that could not be remedied. Other interested parties could be

furnished with the information obtained during the market sounding exercise. As it cannot be ruled out that

market testing does not unilaterally favour firms, which took part in this exercise, it appears necessary to

examine the legal implications of this practice.


Technical dialogue: A further pre-tender consultation exercise is the “technical dialogue” between the CSO

and private sector experts regarding the question of how to draw up the project specification. This problem is

likely to arise due to the complexity of the multi-faceted CSO contract and the corresponding lack of in-house

expertise. Involving potential providers in such early stages of the procurement is further undertaken to

enhance the understanding of the Community of the range of available options. The early technical dialogue

with experts “pays value for money dividends” further down the procurement process, as there is less need to

re-consider non-compliant bids. To influence the Community in the process of drafting specifications is

probably the most powerful tool for private sector contractors to ensure that they win the contract. Awarding

authority may have an idea of the desired outcome in the more general terms, but there is likely to be a range

of specific outcomes consistent with the general aim. Hence, if a service provider is employed to advice on

exercising the CSO’s discretion on possible solutions, it will seek to favour the solution it can provide. The

CSO conducts the technical dialogue with experts in the field to receive suggestions on possible technical

solutions. Hence, it is inevitable that discussions with firms influence the later choice of a product or service.

Furthermore, the participation in pre-tender talks allows to gather more detailed information on the needs of

the Community than this would be possible on the basis of a “paper specification.” Viewed from this point, the

consulted provider has a competitive advantage over other operators in the market, which took no part in the

consultation exercise.

It is arguable that competitors of the consulted undertaking have a genuine interest that the CSO discusses

technical issues before embarking on the formal procurement process. This avoids delays and related higher

transaction costs for preparing bids even on their side. As with the market testing exercise, the technical

dialogue may give preference to firms that have taken part in the pre-tender negotiations. It becomes

necessary to consider the legal implications for the procurement process in case of public financial

participation.


5. Case Studies This chapter presents different case studies across Europe. The cases are on both retrofitting and new construction via

observation and demonstration cases that the partners are involved in. The aim of this chapter is to illustrate the

differences in the project types, end-user tendencies, procurement methods that all affect the new contract method and

procurement strategies for CSO projects.

5.1 Retrofitting contracts in the Czech Republic

The Czech State of the art 5.1.1

The origins of current Czech collective self-organised organisations (CSOs) can be traced back to housing co-

operatives. The first housing co-operatives appeared in former Czechoslovakia before WWII. These first co-operatives

were small organisations formed to manage small-scale residential dwellings. During the socialist era after 1948, large-

scale housing co-operative organisations were created to look after hundreds of new dwelling units being built,

especially in large panel building districts.

In the 1990s after the collapse of the regime, privatisation of blocks of flats was implemented in two phases. In the first

phase, municipalities received state-owned properties. In the second phase municipal-owned buildings were sold either

to newly established housing co-operatives or to individuals who in turn established associations of dwelling owners13.

According to Czech regulations (Act 72/1994 Coll.), when a building that consists of five or more flats and three or more

of them belong to different owners, an association of dwelling owners must be established. This association is a legal

entity and the unit owners become its members and co-owners of common premises. This association has the right to

administer, operate and repair common premises in the building14.

Consequently, from the management point of view, two kinds of CSO client types can be identified:

Small-scale association of dwelling units’ owners:

These CSOs are in resent in relatively small properties, and are most commonly formed to self-manage individual

buildings. Typical types of buildings include masonry-made multi-family houses and low-rise apartment buildings.

Large-scale association of dwelling units’ owners:

13 Profile of a Movement: Cooperative Housing Around the World (2012). CECODHAS and ICA Housing. 14 Nieboer, N., Tsenkova, S., Gruis, V., & van Hal, A. (Eds.). (2012). Energy efficiency in housing management: policies and practice in eleven countries. Routledge.


These CSOs are predominant in large panel multi-storey buildings that retain the original co-operative

management for several buildings in hands of a housing co-operative administration, sometimes even at district

level.

Depending on the size of these associations, buildings can be professionally (by outsourcing) or volunteer managed

(i.e. by members of the owners association). Each CSO has a statutory body of the housing association that represents

its members.

Nature of Retrofitting Projects

Large part of the Czech housing stock built is composed of post-war multi-story prefabricated concrete panel apartment

buildings, the majority of which are or will shortly be in need of extensive repair and rehabilitation.

It is estimated that between 1958 and 1990, 1.2 million dwelling units were built using precast concrete technology.

While, these buildings might look nearly identical, more than 40 different structural systems exist. However, similarities

in these structural systems make it possible to develop systematic approaches for their rehabilitation.

Most of these large panel building districts were built in good locations and nowadays profit from good transportation

infrastructure and availability to public services (health centres, shopping centres, schools, cultural centres, etc.). Thus,

middle-class families living in these dwellings see the benefits of improving the technical conditions of their buildings.

Many of these retrofitting projects are often trigged by the need to save energy costs and to increase the value of the

property by improving its aesthetics and repairing damages and signs of deterioration. The role of CSOs is then to

define the scope of the retrofitting project and outline their requirements within their financial capacity. Normally, CSOs

have a maintenance and repair fund; members are obliged to contribute to the building maintenance fund by monthly

fees.

Management of Retrofitting Projects

Normally, a housing co-operative is the legal entity in possession of building, which it administers both financially and

technically. The board is a statutory body to the cooperative, but some decisions may only be approved by a members

meeting. This is the case of retrofitting works and other construction works which must be sanctioned by the majority of

votes at the members meeting. Therefore there is a community-organised process before undertaking retrofitting

projects, since the CSO members usually have interest in improving their buildings. As stated before, such projects

have the double goal of decreasing energy costs and increasing the value of their property.

Members of CSO boards normally have limited professional experience and restricted free time. As consequence,

CSOs often hire consultant advisors to manage the whole retrofitting process.

The appointed consultant helps the CSOs to identify the stages of the project and possible contractors for each stage.

Consultants might be also responsible for all administrative matters including building permit, financial issues like an


application for financial support, if the project satisfies all necessary requirements. Consultants regularly report to CSO

boards about the progress and decisions taken, while some decisions must be also approved by CSO boards.

The most common approach to manage retrofitting projects is a traditional segregation of the process into individual

steps. The CSO directly hires individual contractors to perform the following sequence of steps:

Building assessment (technical survey)

Energy audit

Design of refurbishment

Retrofitting works

Site supervision

In each step specialized companies are usually chosen on the basis of open competition. Successful references of the

contractor often play an important role during the selection process.

Retrofitting Contracts

Traditional contract models are the most often adopted (e.g., Design-Bid-Build). Contracts are based on fixed prices

and fixed time scale, both defined in the contract. Delays might be financially penalized and penalty amount per day

defined within the contract. Appropriate penalty might be also applied in case of delayed payment of contractor’s

invoices.

Figure 19 (Left) Workflow of retrofitting projects

Figure 20 (Right) Contractual relationships of retrofitting projects

Figure 19 and Figure 20. These two figures will help explain the roles of the participants of retrofitting projects and

common contractual relationships for this kind of retrofitting projects.


Case study “Na Stárce” 5.1.2

The successful retrofitting of the building “Na Stárce” in Prague showcases the main features of contracts normally used

in retrofitting projects aiming to improvement of energy efficiency of dwelling units within the Czech Republic under the

state subsidy programme “Zelená úsporám” (Green Savings).

Following the typical procedure described above, the procurement for the retrofit of the external envelope of the

buildings was segregated into small, manageable stages: building assessment (technical survey), energy audit, design

of refurbishment, retrofitting works and site supervision. Traditional contracting was used for each of the stages allowing

the CSO full control over the process at expense of their time involvement. After the building assessment and detailed

design of refurbishment, detailed specifications were available for construction SMEs to bid their offers. Proficient

partner IRS was awarded the retrofitting works contract, while Proficient partner STU was awarded the site supervision

contract. The retrofitting work was contracted as a one-stop-shop for all the works including thermal insulation of the

building façade, partial replacement of windows and other minor repairs needed. Since the scope of the project was well

defined since the beginning, a fixed fee contract was signed and successfully executed for all the parties involved. The

contract included all the typical provisions regarding the technical specifications of the works, time schedules,

warranties, paying schedules and penalties.

Synthesis 5.1.3

Traditional contracting for energy-efficient retrofitting projects is wide-spread in the Czech Republic. In general CSOs

don’t have enough experience to carry out these large retrofitting projects without help of external consulting advisors.

These advisors help CSOs to define the scope of the project (end-user requirements) and guide them through the

design, bid and execution of the project. By dividing the overall project into individual stages (first design, then

execution) the CSO remains in control of the outcome of the project. However, this approach limits the flexibility of

SMEs to provide new, comprehensive solutions available in more integrated contracting forms (including ESCO

services), which are not common in the Czech market.

5.2 Retrofitting contracts in Hungary

The Hungarian State of the art 5.2.1

Hungarian housing stock is alike other central and eastern European countries characterised by relatively high share of

multi family buildings from the time period 1961 to 1990. Nearly 60% of all residential floor space is of the time age 1961

to 1990 (BPIE, 2011). Predominant construction type in those times was the pre-cast concrete panel flats (for the multi

family housing stock at least. Typical for the CEE countries is the fair share of district heating facilities still operating

(29% according to the latest BPIE survey).


With regard to tenure of residential buildings in Hungary, nearly 90 % of houses are privatized and owner occupied.

Very small numbers when it comes down to forms like private rent of public rent. Typical ways of organising the owner

occupied apartment building is through, dealing with operation and maintenance can be divided in two legal categories:

1. Condominium.

A condominium is an entity without a legal personality, which is formed by Owners of residential units.

Condominiums had already begun to form at the beginning of the 19th century by the initiative of small investor

homeowners, who, besides the big capital owners, realized a big amount of tenement projects between 1880 and

1910. The legal form of condominium ownership had been created by the Act No. 12. of 1924 which had been

proclaimed in 10th of May, 1924 and it had been in force for more than a half a century. The majority of

condominiums have been founded according to this act and Deeds of Foundations that had been accepted are

influenced by this act to date. The law regulates the amount of common costs (HUF/m2/year) and its use, including

the establishment of the “renovation fund” which is the source for major investments. During the socialist era

condominiums had been the preferred organisational form of the private housing projects of middle-class

communities, unlike the prefabricated blockhouse projects that had rather been realized by the State. The latter

had been managed by local government bodies.

2. Housing associations

Housing associations are entities with legal personality, which holds the ownership of building structures which

belong to the undivided property, common areas and mechanical equipment. Act No. 12 of 1977 has settled the

legal status of housing associations, and later it has been modified several times. Changes in the governmental

system of Hungary haven’t really been in favour of founding housing associations. Buildings that had been formally

owned by the State had rather been guided to become condominiums, and by housing privatization flats had been

transferred to private ownership of their tenants with really favourable payment conditions.

Typology of the Housing Stock in Hungary is shown in Figure 21.

Figure 21 Typology of the Housing Stock in Hungary in year 2005

27%

4%

4%

65%

Condominium › 4 flat/house

Condominium =‹ 4 flat/House

Housing association › 4 flat/House

Family houses


1.3 million housing units of the total housing stock in Hungary is in building with more than 4 units and joint ownership.

41% (508,000 units) of this amount were built in prefabricated blockhouse and 89% has district heating. The total

number of flats built with industrialized construction technology – included the prefabricated is 726,000. 60-65% of the

housing units of condominiums and housing associations is in improper technical status, and 70% of them is not energy

efficient (below average). (2005.)

Nature of Retrofitting Projects

As identified earlier, the relatively high share of multi family building from the time period 1961 up to 1990, present a

large improvement potential. As many of the multi family building at that time period have been constructed by means of

pre-cast concrete panels, which face relative high energy consumption patterns (both by poor insulation, air tightness as

well as poor energy system performance). Good knowledge on the typical shortcomings in energy performance and

construction techniques, the availability of proper renovation techniques as well, allow for a good deep renovation

market with high numbers. Issues of finance and organisation within the current condominiums or cooperatives is the

key here. For setting up the right delivery process to energy efficient retrofitting CSO Housing projects, important factors

to consider are:

technical condition and energy-efficiency status of the building and awareness of the owners towards these issues,

own resources of the owners’ community (savings, reserves) as well as their creditability,

preferences and scale of subsidies of the state and municipalities and awareness of Owners,

conditions and discounts of loans and process of taking a loan,

cooperation of mentors and experts on market,

transparency and complexity of tender processes and conditions of applications,

sensibility of Owners towards energy-efficiency and sustainability,

extensiveness of technological and energy-efficiency problems of the building (e.g. mould, roof leaks, pipe rupture

hazard, high energy costs, elevator faults, inadequate heating, CO poisoning, gas filtration),

requirements of state and municipality laws and regulations of energy management processes and retrofitting of

buildings,

effect of the energy-efficient retrofitting on the perception of the value of the building on the real estate market.

In 2005, a survey was carried out about the detected technological problems of the building. Answers of the interviewed

persons strongly correlated with the typology of the residential buildings and the applicable subsidy preferences.

Residents of prefabricated blockhouses considered the absence of heat insulation and the outdated heating system the

most important problems. Likely, quarter of the residents described district heating as outdated (89% of the flats are

equipped with district heating!). However, the answers reflect the preferences of the valid applications at that time.

(2005.)


Between 2004 and 2009 the Panel Programme ensured a non-repayable grant of 66% for communities, which source

had been provided by both the State and the local municipality equally (50-50%).

The grant tenders determined the conditions and requirements both for the preparation of application, as well as for

financing, implementation and monitoring of the project. From these, most important ones are the follows:

content and evaluation criteria of application process

requirements of energy audit

requirements of technical documentation

(public) tender process (according to the regulations of the current Public Procurement Act)

quality requirements and certification processes of products and services

mandatory certification and registration of contractors (yearly update)

amount of own contribution and loan financing

requirements of payment moral (tax, infrastructure services)

requirements of decision making of communities (e.g. rate of minimum votes)

fire and lighting protection regulations

Environmental and nature protection regulations, certificates

Accounting and monitoring obligations.

At the same time, tender for applications did not contain requirements for compliance and guaranteeing of the Indoor

Environmental Quality (IEQ) parameters and the targeted energy-efficiency goals. ESCO companies are allowed to

participate in guaranteeing and implementation of the projects from 2005-2006, but communities of Owners remain the

beneficiary of the subsidies. The most complex projects were implemented in ESCO constructions.

Communities of Owners have undertaken the preparation and implementation of the projects responsibly, and gradually

transferred from partial, short-term and low-cost projects to projects with more and more complex technical content. It

has occurred quite often, that communities provided resources through 10-12 years continuously for implementing

complex projects by undertaking the targeted measures one by one.

Lack of maintenance and renovation works caused probably that Owners are more receptive of structure retrofitting

than of the retrofitting of the building services systems which are needed for the optimal operation of the building or of

complex retrofitting. The increasing subsidy rate allowed the possibility of lowering the energy losses and improve the

appearance of the buildings with a lowered cost. But precisely because of the less than necessary interventions in the

building services systems, in many cases, the IEQ haven’t been improved and the energy saving have been less that

could been possible. As a result, CO2 emission lowered by 158,280 t.


Between 2004 and 2011, owners of 272,000 prefabricated flats received grants for retrofitting purpose. That means that

investments worth around 160 billion HUF(approx. 5 billion euros) were realised with 102 billion HUF (approx. 3 billion

euros) grant, and resulted 319,3 TJ/year energy savings in average and 158,280 t CO2 emission reduction. (László)

Also, the Hungarian Government started small-scale projects with specific goals, like the “ÖKO program” (ECO

Programme) for heating system renovation and district-scale rehabilitation and retrofitting programme.

Next to the above descried capital grants the Hungarian Government provided favourable loans and savings

possibilities for communities and individuals who undertake retrofitting projects. From these, the most important ones

are the follows:

Subsidized Retrofitting Loan: It is a loan construction for condominiums and housing associations. It is a subsidized

loan scheme with up to 10 years payback time. During the first 5 years the Government undertakes the 70% of the

interest on the debt, and 35 % during the next 5 years.

Housing Savings System: Both the condominium, and the co-Owners and members of the Association may enter

into a contract for a subsidized housing savings account, according to which after the closure of the saving time

period a government grant of 30% of the capital and interest will be provided by the concerned housing savings

funds. In the case of communities of Homeowners, both the individuals and the community as a whole uses the

savings for energy-efficient retrofitting of their building.

Combined Construction, which combines the advantages of the previous two schemes.

It needs to be mentioned that CSOs usually take a loan which covers the whole investment, in order to minimize risks

and costs of financing because of the probable delay of delivering State and Municipality grants.

Management of Retrofitting Projects

Because of the fact that in Hungary retrofitting projects are mostly implemented with grants by the state, there is a well-

established process and circle of stakeholders. Hereby we enlist the most important ones:

Community of Homeowners, together with the chairman and their decision making bodies

Members of the Community of the Homeowners: individual Homeowners and members of the Association

organisation that manages the state grants

Municipality Representative

professional mentor, consultant and application writer

financial institutions: bank and housing savings institution

insurance companies

guaranteeing institution

building construction contractor

organisation which operates the energy systems


energy provider, energy service company

ESCO

experts (fire and lighting protecting, specialists etc.)

Technical Supervisors

subcontractors

building material providers

urban district coordinator committee

In the case of condominiums the major decision-making body is the general assembly. Normally the majority of the

votes is simply enough for the decision-making, but it became general that 2/3 of the votes is mandatory especially

concerning what counts as big investment. The general assembly chooses the common representative of the

condominium and members of the accounting committee (2-4 persons, from which one is the chairman). The common

representative is entitled to manage the operation of the building, financial issues and last but not least the large-scale

investments. It is required by the law that leadership in condominiums can only be undertaken by a person with

applicable professional qualification. Owners of a minor part of condominiums (15-20%) outsource the management and

financial tasks to specialized organisations and businesses.

In the case of housing associations the general assembly that assembles yearly is the strategic decision-making body

and nominates both the chairman of the housing association and the directorate which consists of a minimum of 3

members. The directorate is entitled to make decisions of operative issues, as far as it was authorized by the general

assembly. In the case of housing associations with more than 100 flats a partial general assembly needs to be held per

building or proportionally with the number of the members. It is typical that leaders and bodies of housing associations

have appropriate qualifications and practice.

Synthesis 5.2.2

In Hungary we can differentiate the retrofitting projects according the following criteria:

Treatment of performance or financial risk:

o TP1: Basic: only Owners

o TP2: Shared risks: ESCO

Project scale:

o PS1: Part of building

o PS2: Building

o PS3: District/neighbourhood

Technical contents:

o TC1: Partial: mechanical systems or structures

o TC2: Complex: the structures and mechanical systems


o TC3: Sustainable: as above with renewable energy solutions

Financial schemes:

o FS1: without grants,

o FS2: granted

Side of intervention:

o S1: primary side (energy generation, or transformation),

o S2: secondary side: energy use

o S3: Comprehensive (two sides)

According the classification above, can be identified the most characteristic types for retrofitting in Hungary in Table 5.

Types Risks Scale Contents Financing Side

Minor project TP1 PSI TC1 FS1 S2

Advanced project TP1 PS2 TC2 FS2 S2, S3

Semi Deep Project TP1 PS2 TC3 FS2 S3

ESCO

Partial/staggered

TP2 TC1, TC2 PS2 FS1, FS2 S1or S2

ESCO

Comprehensive TP2 TC3, TC2 PS1, PS2 FS2 S3

ESCO District TP2 TC3 PS3 FS2 S3

Table 5. Characteristic types of retrofitting in Hungary


5.3 Lancaster Cohousing Project

One of the first things that Lancaster Cohousing developed in 2006 was a Vision statement:

‘We plan to create an intergenerational cohousing community at Forgebank, Halton that will encourage social

interaction and will be built on ecological values. It will include around 25 homes with community facilities and

workshop/office space. We will seek to enable sustainable travel to central Lancaster so that residents have

easy access to amenities that are not available in Halton village

The community will be built on ecological values with new buildings meeting the Association for Environment

Conscious Building Gold Standard. This will enable us to meet the requirements of Code for Sustainable

Homes Level Six. The development will be designed to facilitate spontaneous socialisation supporting a full

neighbourly community. The development will comprise properties that will be of interest to a range of

household sizes and incomes. The cost of social space and eco-build will be balanced against affordability

constraints.

The project will be a cutting edge example of sustainable design and living. It will act as a catalyst and

inspiration for significant improvements in the sustainability of new development, and will have close links to

Halton and the wider community.’

This formed the basis of the design principles and many of the requirements and policies that the community

subsequently agreed.

The purpose of the paper explaining ‘ecological values’ was to help to reach agreement on the approach to the diverse

environmental impacts of building and living in the community. It acknowledged that members had joined because, at

least in part, they wanted to live in an environmentally sustainable way. Because environmental impact is a complex

issue and individuals have different priorities, some people would want to and/or be able to take this further than others

depending on many factors. The hope was that the community would be a supportive environment within which all could

reduce their individual impacts at a level they chose.

The eco-build aspect was addressed by agreeing to work towards achieving the highest level of environmental standard

of the homes and the building process, which at the time were AECB Gold and BREEAM Eco-homes Excellent

standards. This was subsequently amended to Passivhaus standard and Level 6 of the Code for Sustainable Homes

during the design phase late 2009.

In relation to eco-living and the communal areas, the aspiration was that the common areas felt like extensions of

members’ homes and the concerns were largely about consumption and procurement. This could include not only food

and cleaning products, but also furnishings and garden products. Seven issues relating to cooking vegetarian and


vegan food were identified: organic production, fair trade, animal welfare, GM, food miles, packaging and avoiding

waste food.

In terms of eco-living and members’ private homes, the general principle was that individuals should be free to decide

what they want to do in their own homes. The exception to this was when freedom of choice would:

Impact on the viability of communal infrastructure on which other households depend

Prevent the achievement of the project vision

The founders created the legal "personality" of LCH Company Limited in April 2006 in order to progress their vision.

This also enabled them to start marketing effectively and expand the group. As the membership increased, structures

were necessary in order to communicate and collaborate effectively. A key driver was to minimise individual liability for

any debts incurred by the legal body and also to make the body democratic.

Lancaster Cohousing is a not-for-profit company, no. 05801423. The founders decided that the most appropriate legal

form was as a Company Limited by Guarantee because all the members would ‘own’ the company and it could be

structured as a mutual organisation that provides services for and on behalf of its members. As it would be acting as a

housing developer, this legal form was also the most efficient for financial purposes as well, since mutual companies do

not pay Corporation Tax on services provided to members. During the design and construction phases, the directors

had a wide range of experience in project management, community development, green building and ecological living. A

member of the company acted as a client project manager to co-ordinate the relationship with the professional team.

Lancaster Cohousing has redeveloped a 2.5ha derelict riverside site to provide around 1200m2 of managed business

space in a converted factory, 41 new-build Passivhaus homes, and indoor / outdoor community space. The project was

a cornerstone of Halton Carbon Positive! - one of the Department for Energy & Climate Change’s 22 test-bed Low

Carbon Communities around the UK.

With the project at Lancaster Cohousing including many non-standard Passivhaus details and complex civil engineering

works, it was decided there would be significant risk pricing by contractors, and possibly some difficulty in achieving the

most competitive tenders, or some reluctance to tender. There was a potential for extra claims throughout the contract

period. There were a limited number of contractors of a suitable size within the local area, and two contractors withdrew

from the process after shortlisting. Amongst the reasons cited were the uncertainties surrounding delivering an

unprecedented number of dwellings to Passivhaus standard and the human resources required from the contractor side

to engage with the detailed design process.


Figure 22 [Crop of layout plan Lancaster Cohousing – visualizing common house, some facilities and flats (LCH)]

Decision regarding Design and Build (Integrated Contracts) 5.3.1

Although the architects had utilised design and build contracts successfully on a number of occasions this was usually

for relatively simple projects by comparison with the proposed Lancaster Cohousing development. With design and

build there is always a loss of a certain amount of control over the final design and quality of the project that would be

delivered and it was decided this would be a very undesirable aspect at Lancaster Cohousing, where resident

involvement in design was one of the unique selling points. With design and build the possibility of risk pricing, in

respect of some of the more complex elements of the project, would be great and possibly more than might apply if

traditional procurement was adopted. Design and build could have resulted in an earlier commencement of the works on

site than might otherwise be the case, but it was decided if other contract arrangements were carefully structured, the

difference in timescale would hopefully be negated. Although the contractor may have expected that a Design and Build

(Integrated) contract could have meant an earlier start, the same design issues would have had to be resolved

economically prior to being in a position to proceed whatever the form of contract used.

Partnering defined at Lancaster Cohousing

Partnering as defined in the LCH project is similar to an Alliance contract as defined earlier. It involves selection of

contractors at an early stage, on the basis of a combination of price and quality. It provides for the most informed choice

of contractor, who is sympathetic with the ideals of the project but able to deliver the right project at an economic price..


Why partnering was chosen for Lancaster Cohousing

There are a number of circumstances where partnering contracts are considered beneficial, and the reasons for this

choice at Lancaster Cohousing were as follows:

The project was complex in nature, where early contractor input, as part of the design team, has been

considered beneficial.

The project was to involve unfamiliar Passivhaus systems and renewable technologies where, without a

partnering approach, there would potentially be extensive risk pricing by contractors.

The project scope of works was difficult to quantify (particularly civil engineering works) at the tender stage,

and a structure for valuing the works needed to be set up as part of the tender process.

The project was on a tight timescale where there was a need to achieve early contractor selection and

commencement of the works. The programme assumed that planning consent would be achieved in summer

2010 to allow the main construction contract to start in early 2011 and substantially complete the development

in early 2012. .

The view was that it would be extremely unwise to adopt design and build as the procurement option in this instance. It

would have been nearly impossible to have progressed this project under normal single stage competitive tender

processes, as it would have been very difficult at the outset for any inexperienced contractor to accurately price a large

Passivhaus project, with 41 individual house holders on a complex site, which was partly contaminated/brown field site

on a steep slope down to the river, where it had not been possible to fully investigate ground conditions due to physical

access constraints. It was agreed that the favoured option would be a partnering approach, with a guaranteed maximum

price, with a shared incentive for savings.

Appointment of the design team 5.3.2

The appointment of the architect was conducted in 2006 by a thorough selection process. Four architectural practices

were shortlisted on the basis of their experience both in eco-build and cohousing. Group members visited the architects’

previous projects to help to inform their decisions. The final decision was made on the basis of an interview panel which

comprised four members of LCH.

In relation to the procurement of the site, the architect assisted with sketch layouts of sites which were used to inform

net value calculations. The architect was instrumental in the appointment of the remainder of design team.

There was a high degree of participation between the design team and LCH at all stages in the design. It was important

that the key members of the design team understood the vision of LCH and were able to contribute to the vision and

enable it to be achieved. This was especially true of the architect

The appointment of the quantity surveyor (QS)/contract manager (Turner & Holman) occurred after planning permission

was granted and upon recommendation of the architect. Their role was to oversee and manage the costs and contacts


for the build. The QS proved to be invaluable, possibly more critical than the architect in ensuring that the project was

successful. The Client Project Manager (CPM) and QS worked closely together to ensure that the design and build ran

as smoothly and efficiently as possible; the QS could normally be relied upon to know how to deal with the day-to-day

issues and risks that were encountered. Crucially the QS could provide unbiased assessments of who should be

responsible for dealing with an issue or task, which was important when there was disagreement within the design team

and contractors. During the build phase the QS also took on the separate role of acting on behalf of the bank so that

they could approve the monthly payments to the main contractor and draw-down requests for the loan.

The rest of the design team, including structural/civil engineers, mechanical and electric designers, were appointed on

the recommendation of the architect.

Outline strategy of partnering at Lancaster Cohousing Project 5.3.3

Some of the key considerations around the type of contract and strategy for the Lancaster Cohousing Project were:

The project was complex in nature, where early contractor input, as part of the design team, was considered

beneficial.

The project was to involve unfamiliar Passivhaus systems and renewable technologies where, without a

partnering approach, there would potentially be extensive risk pricing by contractors.

The project scope of works was difficult to quantify (particularly civil engineering works) at the tender stage,

and a structure for valuing the works needed to be set up as part of the tender process.

The project was on a tight timescale where there was a need to achieve early contractor selection and

commencement of the works.

A partnering contractor (Whittle Construction) was selected through an initial tendering process. That process was set

up relatively speedily and involved contractor selection on the basis of a combination of a limited pricing submission,

quality submission and interview. The tendering process that selected Whittle Construction was a three stage process:

pre-qualification, formal tender submission and interview. Twelve contractors were contacted and asked to return pre-

qualification questionnaires (see attached Appendix A Pre-Qualification summary) and this was then increased to 14

when the return rate was poor. Six contractors were then invited to submit formal tenders. Finally four contractors were

interviewed by a panel comprising QS/Contract Manager, Architect and Client Representatives. (see attached Appendix

B Appointment of Main Contractor - Tender Report for more detailed information).

An outline of the project requirements were set out in a project briefing document to introduce the design information

which was made available to all contractors who were being considered. This specified Passivhaus as well as Code for

Sustainable Homes level 6, and covered the scope of the development and details about the architects and design

team, planning, finance, site location and access and resident led design (See attached Project Briefing Document

2010).


The Quantity Surveyor and Contract Manager (from Turner and Holman) was responsible for putting together the

documentation, with the client, architect, structural engineer and Mechanical and Electrical engineer all contributing their

own sections. The architect was responsible for producing the architectural design information for tender process. The

design was based on the Royal Institute of British Architects (RIBA) stage D

(http://www.architecture.com/files/ribaprofessionalservices/clientservices/ribaoutlineplanofwork2008amend.pdf.

Structural and Mechanical and Electrical engineers were involved well before the tender as they contributed to the

tender pack. The Landscape Architect came later, with a provisional sum being included at tender stage. The District

Heating designer also came later. Generally designers reported to the Client Project Manager but the Contract

Manager was responsible for signing off payments under their appointments. Lancaster Cohousing was not directly

involved in contracts with sub-contractors/suppliers and the stage at which these were signed and managed varied

according to the needs of the project.

After selection as preferred Contractor, Whittle Construction worked with the project design team from planning

application stage through to the start of works on site as part of the stage 2 process, but it was not a contractually

binding appointment. Whittle Construction worked with the design team, pricing the work packages and assisting with

value engineering to adjust the project to achieve the guaranteed maximum price.

As a satisfactory guaranteed maximum price was achieved, Whittle Construction was then appointed formally as the

building Contractor. The initial arrangements for this two stage partnering approach were similar to those for the

traditional contract, but used a building contract and procedures which incorporated partnering provisions (i.e. NEC3

Engineering and Construction Contract Option C: Target Contract with Activity Schedule). In utilising the NEC contract a

guaranteed maximum price was established for the work, Whittle Construction then being reimbursed on the basis of

actual costs incurred on site, plus their competitively priced preliminaries and overheads. The risk of work being

required outside of the scope of the defined work package (variations), for example additional bed rock removal or more

complex foundations, remained with Lancaster Cohousing. This also applied where there were conflicts within the

design which resulted in additional work.

The contract did, however, incorporate a target cost and if there was a saving relative to the target cost, that saving to

be shared between the contractor and the employer. Typically this is on a 50:50 basis, but a 75:25 basis was agreed

between Whittle Construction and Lancaster Cohousing as part of a wider negotiation at value engineering stage. If the

final cost is between the target cost and the guaranteed maximum price the contractor is reimbursed his actual costs. If

the cost exceeds the guaranteed maximum price the reimbursement to the contractor is capped at the amount of the

guaranteed maximum price, subject to any variations issued to Whittle Construction during the contract, which give rise

to adjustment of the guaranteed maximum price being required.

During the construction process Whittle Construction carried out the works and at all times liaised with the other parties

regarding the costs of individual activities being undertaken. Whittle Construction were reimbursed on the basis of the


actual costs incurred, plus the pre-agreed preliminaries and overheads. That reimbursement was subject to the limit

brought about by the guaranteed maximum price. The process ensured that competitive tendering of individual activities

could still continue and achieve a potentially shared benefit between the contractor and employer in instances where

savings can be achieved.

A few items of work, notably demolition and solar PV installation, were dealt with as separate standalone contracts, and

managed directly by the client. This was partly to save costs, but also because in the case of demolition, Lancaster

Cohousing wanted to complete that stage of the work as soon as possible to facilitate further site investigation, before

Lancaster Cohousing were ready or able to enter into the main build contract.

Synthesis 5.3.4

It was found that adopting a partnering approach of this nature achieved a significantly closer working relationship

between the contractor and the project team, often in a more harmonious way. The partnering process, prior to

commencement of works on site, took nine months. In the meantime all the team members got to know each other well

and knew how each worked and interacted with one another. It was felt that the entire project team (client, designers,

managers and contractors) appreciated the partnering approach to contracting and believe it has been beneficial, if not

fundamentally critical, to the success of the project.

The form of partnering contract used for the project was not one that the providers of the development funding, and in

particular their legal representatives, were very familiar with, and there was a difference in the terminology used by

Lancaster Cohousing’s Contract Manager and the bank’s legal representatives to refer to the same set of

arrangements. This led to some confusion and delay during the process to approve the loan facility, with the bank

requiring consultants’ contracts to be re-negotiated to reduce the perceived risk to the bank. Design consultants who

had generally been engaged under model appointments published by their trade bodies (for example the Royal Institute

of British Architects or the Association of Consulting Engineers) had to be reappointed under the NEC3 family of

contracts. This was an expensive process both in terms of legal fees and also due to the need to recompense

consultants for bearing additional risk and increasing their professional indemnity insurance levels in line with the banks

demands. Arguably, even if there had been no costs involved, the impact on working relationships of these late

renegotiations, and the manner in which they were demanded, introduced more risk to the project than was being

mitigated by the tighter contractual arrangements.


5.4 New construction CSO contracts in Germany

The German State of the art 5.4.1

In Germany there is a growing demand for CSO housing projects ongoing for years now. From the early nineties until

now approximately 1000 projects have been successfully realized using different organization types for the CSO

housing structures and the involvement of the participants. Nevertheless the roots of the movement in Germany can be

found in the first quarter of the 20th century, between 1920 and 1930, when social-oriented housing associations tried to

provide housing space for regular people and affordable investment. Then the 1968 generation gave another push to

the movement that was more moved by community living values and last but not least in the 1980’s the social and

ecological driven discussions created the ongoing hype.

Especially in high density areas of cities the CSO housing approach is promising in terms of realizing ones’ building

wish on the most desired site –not too far away from infrastructure and city centres- for a comparable competitive price.

Regularly the demand of the target groups is focusing on new buildings as the typical condominium ownership model is

highly complicated in order to redesign an existing building following a simultaneous approach based on the decisions

of 100 % of the owners.

The common objective – building a home for a group of people- still is the driving force for all different types of the

development approaches and the action undertaken by the group is realized by the engagement of some of its

members that take over the responsibility for tasks that are regularly managed by engineers, contractors or specialized

craftsmen.

Different contractual approaches 5.4.2

There are at least three different main approaches depending on the type of community building:

1. As the initiative for building collectively is regularly driven by the single clients’ wish to realize their own desires, the

start is the community building on a non-professional level of interested people looking to solve their own housing

problem.

2. The process is often encouraged by the architect as a professional in the field of consulting the group in terms of

design, costs and site demands. For the architect it is a regular contract which has the advantage –compared to

the equivalent project size of a contractor building regular condominiums- of sharing his risk of getting paid for his

services on a larger group, while still having the advantage of a large buildings’ contract. Sometimes the architects

develop their own approach of managing, monitoring and steering a CSO housing group based on their long term

expertise.


3. CSO housing is often installed by city governments as the approach of building collectively following design

guidelines is quite fashionable, compared to ongoing discussion with strong acting general contractors that are just

following their motivation of building quick and cheap.

The building phases and the influence on contractual issues 5.4.3

When a CSO Housing group is formed and developed to the stage, they like to start hiring in experts (architect, process

manager etc), it seems crucial to have the group act in a legal entity of organisation (in becoming partner in contractual

agreements etc). In the German context, there are at least three types of legal entity that might serve this purpose:

1. The GbR –Gesellschaft bürgerlichen Rechts- is an unlimited company where the shareholders or cooperative

members are in charge of any action especially payments and contractual issues simultaneously. The GbR is

founded in written or unwritten form by just declaring that it is existing and who are the participants. The

participants are persons not companies and they are all 100 % responsible –unlimited- for any action of the GbR.

The company is unregistered and can be an operating status after 5 minutes.

2. The Association based on the WEG i.e. the German law of shared property organization based on the law of

Property ownership.

3. The association eG which is more focusing on a share concept where all participants are profiting from low rent

costs while paying a certain share of money for the associations´ funding.

All types of internal contractual bindings have different advantages and certain risks. Especially the unlimited company

is bearing the risk of 100 % liability not limited for ones part of the investment but for all parts simultaneously.

Nevertheless after a long period of the general contractors covering approximately 100 % of the housing market

demand the clients are willing to take a higher risk as they learned that the contractor is funding a new company for

every project development meaning the trust in acceptance of amendments related to realistic liability efforts is almost

gone. In fact the contractors prefer to close a company instead of fulfilling their regular duties especially if the financial

demands in terms of liability activities are growing.

Special contractual models 5.4.4

On basis of the above mentioned different legal entity structures the contracting of services and work is based on

regular offers and tenders. The motivation of the group for decisions is not just money but money-value driven as they

are not acting for the profit of a contractor.

The contract nature follows the way described by the German BGB –Bürgerliches Gesetzbuch- as a typical contract for

labour and services providing the rules for performing, balancing, contracting and acting in terms of liability issues and

time. Often the basics of the BGB are combined with the German VOB –Verdingungsordnung für Bauleistungen i.e. the


preferred voluntarily law for tendering, calculating, balancing and duties of supplying company and client which has to

be added to the regular BGB demands in written form - that adds the specific demands of site working e.g. way of

tendering, calculating and balancing and obligations of the contracting craftsmen. The VOB is well introduced and

balances the interest of the acting persons and companies on a fair level. Therefore it is common to combine this

regulation with any contract signed in the German building industry. The architects and other service consultants e.g.

urban planner, structural engineer, mechanical services engineer are contracted based on the BGB contract for services

and work, as well, while the additions of the “HOAI” i.e. the Honorarordnung für Architekten und Ingenieure –the law for

building oriented service fee, the contents of work, duties of the contract partners and different quality insurance issues

have been followed simultaneously. Especially the detailed content of work, the relationship between client and service

provider, duties e.g. while steering a site and other details are organized by that instrument.

The liability rules are quite different related to the engineering and craftsmen’ world. While the craftsmen have a liability

of 2 years for typical work on site issues, if contracted especially 5 years e.g. the architects liability lasts 5 years

regularly and correlated to energy consumption and failures in this field that come up in the use period of the building it

is up to 30 years. Even the liability situation and the need to cover the risks influence clients to go for CSO housing: The

insurance of the acting architect and all other collaborators is still valid if one of the partners goes bankrupt. In that case

the risk is minimized compared to typical general contractor contracts in Germany. Furthermore –if the architect is in

charge for steering and monitoring the site- he bears the liability for the whole project facing possible demands of the

client. This means that the client is free to decide to involve the architects as the holistic liability providing actor into

amendment processes and if he is going for the involvement of the craftsman there is always a fall-back position: e.g. if

the company is no longer existing the architect is in charge of the costs.

Synthesis 5.4.5

The German CSO housing market did not develop special contractual models for the internal organization of the group.

In terms of binding the members of the association that are collectively acting there were existing schemes available

that followed the rules of well introduced German entity law.

Regarding the organization of the contractual issues between the CSO housing group and the external design partners

like architects and other service engineering partners and the craftsmen and contractors working on site the whole

contracting process from tendering to performing, balancing and liability duties is well introduced in the building market

and fixed by German law, as well.

Following the growing demands and combined risks of environmental friendly buildings’ demands, it could be an

interesting option –in terms of performance quality, consistent flow of information, responsibility and liability issues- to

combine the actors in this field and form a new part work general contractor focusing on these special demands. The

advantage is not just clarifying the responsibilities for amendments and liability actions but to have an ongoing single

partner for any maintenance business which is quite demanding in this field of action. The business case developed in


WP 4 looking for performing this mechanical services oriented holistic model from designing to engineering and

maintaining is an interesting option for CSO housing groups to get rid of too much steering action in the field of facility

management work.


6. Conclusion, discussion, and recommendations In assessing and developing suitable procurement approaches, project delivery methods, contract models, it is

necessary to consider the goals of the CSO client and the characteristics of CSO client and CSO projects. Some

procurement approaches are better suited than others as a route towards achieving the CSO clients’ goals.

The research reported in this Deliverable first investigated the CSO client goals and CSO client and project

characteristics.

There are various goals CSO clients want to achieve in their new build or retrofitting project. Logically, most are

directly related to the ‘classic’ project management goals of time (to completion), costs and quality. Of special interest,

particularly in the scope of PROFICIENT, is the goal of energy efficiency. It was concluded that CSO clients often have

energy related goals, but that these ambitions are not always explicit.

A particular interesting aspect is the desire of CSO clients to participate in the decision and design process. It can be

argued that ‘being involved in the project’ is not a true goal by itself. However, to a CSO client, not being involved in the

project can be considered as undesirable or even failure (even if the outcome of the project satisfactory).

Next to the CSO clients’ goals, there are various CSO client characteristics that play a role in probability of a

successful project:

CSO clients are private clients; by default they are not bound to public procurement regulations or standards.

However, when public funding is in play, this character might differ.

CSO clients organize themselves in different forms (for example, as informal, semi-formal and formal

communities/legal entities).

CSO clients are often not knowledgeable about construction or construction management.

The financial capacity and access to financial instruments such as individual bank loans or collectively gained

subsidies and grants vary between.

Next to the abovementioned, it is important to note the diversity of CSO clients. While there are general characteristics,

each CSO project and CSO client can vary in size, type of organization, financial capacity, knowledge, capabilities, etc.

Next to the goals that are aimed for, the characteristic play an important role in the outcome of the project.

Chapter 2 discusses various project delivery methods that can be considered in new build projects. The distinction

between project delivery method relates to way tasks (e.g. design, build, maintain, finance, operate) are contracted to

one or multiple parties. The attributes of the project delivery method also affect the outcome of the project. To assess

project delivery methods, it is necessary to also consider the goals of the CSO client and the characteristics of CSO

client and CSO projects. For example, long term energy & cost efficiency goals may benefit from having a project

delivery method where design, build and maintenance are contracted to one party. However, such project delivery

method generally requires more upfront knowledge and experience on contracting such a contract. Moreover, it might

also result in less participation in the design and building process, which may be undesirable.


Concluding, there are contradicting arguments in each approach. Many goals may favour from a more long term

approach/project delivery method, but short term goals and client characteristics may plead for other approaches. The

project specific goals and client specific characteristics determine what route is more favourable compared to others.

Chapter 3 discusses Energy Service Company (ESCO) related contracting. Similar to project delivery methods, there

are many forms of ESCO contracts, each with particular attributes. And again, it is dependent on the CSO client goals,

and client/project characteristic that determine which type of contract is most suited.

ESCO’s are often associated with retrofitting projects. However, one should note that the concept of ESCO’s is equally

applicable in new build construction. An ESCO might provide a vital partner in new build CSO project to ensure future

energy efficiency.

Chapter 4 builds forth on the findings of chapters 2 & 3 and provide more detailed information on the contract models

that might be employed in CSO projects.

As stated above, there are many considerations to take into account in selecting and developing a suitable approach.

The case studies in the PROFICIENT project support these findings. Across Europe, there have been many different

forms of CSO projects, each having a particular procurement approach and contract model. This diversity is a result of

the many variances in CSO clients and projects. The cases described in Chapter 5 also illustrate the many details that

are considering in selecting the most appropriate procurement approach.

Based on the findings, several recommendations can be made:

- It is vital to identify the characteristics of the CSO community, the goals of the CSO community and the

characteristics of the project. This forms a starting point of evaluating possible procurement routes.

- CSO clients should aim to start evaluating suitable procurement approaches as soon as possible. The evaluation

should identify the strengths and weaknesses of each route. One challenge is to select a suitable starting point and

work on countering potential threats relating to weaknesses of that procurement approach. The research done in

this deliverable, including the case studies, provide insight in how potential negative elements of a procurement

approach can be countered. The CSO client may want to consult a procurement expert in this matter.

- A success factor in any approach is the availability of knowledge & experience to manage the internal decision

process and the construction process. The more complex the project and the procurement approach the more

knowledge and experience is required. As mentioned before, such knowledge is generally absent in CSO

communities. Therefore, such help needs to be sought outside the CSO community (e.g. the CSO expert).

- Early inclusion of construction & energy efficiency point of view. Characteristics of CSO clients tent to focus on

short term goals (e.g. involvement in decision process, availability of financing, the lack of explicit energy goals).

Including a long term perspective can be achieved through various means. In an integrated approach, such point of

view is ensured trough the contractors responsibilities for both construction and maintenance, operations, and

energy provision. But also in segregated (traditional) forms of contracting, reviews can be done at specific

moments in time to ensure the timely involvement of other expertise.

- Related to the above, CSO clients should consider the concept of ESCO for both new build as retrofitting as it

provides possibilities for achieving CSO clients’ goals related to energy efficiency.


A key challenge for CSO clients remains to develop a procurement strategy that is tailored to their specific goals and

circumstances. The work presented in this deliverable highlights key aspects to consider in developing that strategy,

thus contributing to the achievement of CSO clients’ goal. Although the number of choices and considerations is large,

one should also note that this means that there are many possibilities to for CSO clients to ensure achieving their CSO

project and energy related goals.


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transparense-project


APPENDICES

Appendix 1 Existing housing typologies

Cohousing an end-user initiated, developed and managed small-scale type of residential housing development

(Fenster 1999; Lietaert 2010). It has mixed programs of private and common dwellings to recreate

a sense of community, while preserving a high degree of individual privacy (Lietaert 2010).

Cohousing requires equal degree of participation of end-users (McCamant and Durret 2011) and is

driven by a modern-communal life style.

Common Interest

Community

a community-led private real-estate development (Hyatt 1998; Paik 1998), organized within an

association created by either statute or covenants running with the land (Fenster 1999). The

community becomes as an institutional client (McKenzie 2003) and is driven by the additional

spatial and emotional characteristics (Brouwer and Bektas 2014).

Collective

Housing

initiated by often municipalities to fulfil modernisation and gender equality such as less house work

for women (Vestbro 2000). It is programmed as apartments around central kitchen, with food-lifts

providing ordered food to each apartment; driving the collective and communal living.

Intentional

Community

driven by a shared strong religious, political, environmental or social ideology rather than simply a

desire to have a strong sense of community with their neighbours (Guinther 2008). There is no

specific program demand by the community as long as the ideological group lives together in their

own islands.

Collectively

Commissioned

Housing

driven by additional functions and values, not represented in standard housing (de Haan &

Tummers 2007). The driving force is the potential to be financially and institutionally strong as a

collective group. Their programs include such additional spaces next to workspaces, garden,

playground or bike stall, might also serve wider neighbourhood functionality.

Community-led

Housing

formed to stimulate tenants and leaseholders to collectively take on responsibility for managing the

homes they live in (NFTMO 2004). The tenants participate to the decision process, excluding major

decisions. It is driven by cost-effectiveness, improved maintenance within short-term frame due to

the tenancy period.

Self-

build/provided

Housing

driven by cost-effectiveness and affordability comparing to speculative housing provision. It

becomes a major element in the expansion of European metropolitans, and sometimes reaches the

heights of 'post-fordist' industrial organisation and product development (Duncan and Rowe 1993).


Existing movements exemplified above have either community or program driven values. For example, cohousing,

collective housing, intentional housing are on the community-driven side as the program is a tool to create the life-style

the community desires. Whereas common interest community, collective-led/commissioned housing are on the

program-driven side, as the enhanced program itself is an expected result due to the additional physical features that

the community aim to have (i.e. controlled entries, surveillance, similar-income housing, affordability, more public

spaces etc.). None of the examples results in a totally unique programs but new physical and social entities in relation

with their community profile, shared-values and the degree of their participatory behaviours from the perspective of

design process. In other words, even if the categories are not univocal, each typology can differ by basing on some

characteristics. These characteristics deal with:

Higher/lower sense of community,

Level of involvement of end-users,

Motivations/values which drive a group of individuals to start a collective process.

This can result in ideologically-driven communities or in groups-driven by the potential of saving costs and/or having

affordable and tailor-made design comparing with the traditional housing market. A mayor quote of them presents

shared facilities, as communal kitchen and laundry, or additional services to the neighbourhood. However, no matter

how strong the interaction and participation of the community members with the commissioned parties are and how

changing motivations the y have, there are similar problems such as delays, standard solutions, or not reaching the full

potential of aimed energy ambition in the end. Regarding the sustainability values, only few movements incorporated

‘sustainability’ (focusing on energy-saving) as a value attached to the movement, except the examples in cohousing,

eco-villages which evidently impose a certain ideology of either political or life-style.

The collective movements analysed as Cohousing, Common Interest Community, Collective Housing, Intentional

Community, Collectively Commissioned Housing, Community-led Housing, and Self-build/provided impose a certain

typology and categorization to the future collective groups who focus on deliberately sustainable living and building.

Thus, there is a need for an umbrella concept that doesn’t impose any ideology, typology, life-style yet generic enough

to associate community members to the potential projects and drive the whole development process towards their

requirements at district scale, which incorporate governance of sustainability. This umbrella concept is called as

Collective-Self-Organized Housing.


Appendix 2 Analysis of Existing Housing Typologies

Type of Housing Shared Values/Drivers Behaviours Community Profile Program

Cohousing a shared life style towards

being heterogeneous and

self-regulated group

Lessened private life

due to the increased

importance of

‘common house’

Self-regulating group

active in participation

of design and

construction process

which does not result

in totally unique built

environment

A group of core people

initiates and form the

community and

assigns (‘appoints’)

members towards

their willingness to

their initial rules and

values

Particularly a new

housing on distinct

level which has an

emphasis on having

‘common house’ which

becomes the heart of

the community and

reduced size of

housing.

CIC A shared life based on

homogeneity where

middle income group

acquire housing with extra

features that are not found

in ‘public’ districts

Private life, no

communal behaviour,

Participation to the

design process

through home owner

associations which

owns their own plot

yet the design,

construction and

maintenance activities

are jointly done

A group of

homogeneous people

either formed by

developer or -to a

lesser extent- end-

users itself, criticised

initially of keeping

same income level at

the district

Particularly on new

housing at district level

with surveillance at the

district, private access,

entry control, no

communal houses but

shared amenities

(extras which may not

be even used).

Collective

Housing

Modernization and

improvement of efficiency

of housing, gender equality

(i.e. reducing women’s

workload at house)

Communal life style

and behaviour due to

shared facilities,

spaces within

community, as a result

of the program and

driving forces.

Lacking of

participation to the

design process to

reflect these values

The group formed

after/during to the

project

There is no initiator, as

the initiators are often

local authorities, thus

‘moderate level

community’ occurs

due to the occupants

purchasing/buying

apartments.

Private housing built

around a central and

communal facilities

(i.e. cooking, laundry,

guest rooms etc.) at

building level (i.e.

apartment blocks),

emphasized ‘hotel’

feeling

Intentional

Community

Same ideology (not similar)

of shared religious,

political, environmental,

social ideology

Shared behaviour

shaped by the

expectations from

having same ideology,

which is very explicit in

using/acting on both

private and common

areas

Strong sense of

community and

communal life style,

having same

ideological

background (not

necessarily directly on

education, income

related aspects)

Project at the district

scale with strong

boundaries towards

outside, inclusion of

communal and private

areas similar to

cohousing, but the

proportion of such

areas or


Type of Housing Shared Values/Drivers Behaviours Community Profile Program

Collectively

Commissioned

Housing

Awareness of being

financially and

organizationally powerful

as a group and built

around additional functions

which are not represented

in standard housing which

become affordable due to

the collectiveness

Client behaviour of the

collective group due to

the similar program

requirements, pure

collective building

behaviour rather than

ideology driven

behaviour

Collective group

formed to have

financial and

organizational power

New housing project

at district scale with

additional features

such as garden,

playground, even

extended to the

integration with other

districts (unlike CIC)

Community-led

Housing

Being contractually at the

same level or even being

robust towards contractual

vulnerability (i.e.

leaser/renter who wants to

control and manage their

housing in a stronger

sense)

Collective behaviour

towards improving

their living

environment

conditions

when/before it is

commissioned, and

participating to the

process of

refurbishment (except

commissioning)

Collective group

formed by similar

contractual status

Mostly on

refurbishment at

district or apartment

scale

Self-

build/provided

Reduced cost comparing

to ‘speculative home

builder’, interest in active

construction, building, or

organization tasks

Individual and strong

drive to undertake

actions towards

design, construction or

organizational aspects

of housing,

- No particular program

due to the

characteristics of self-

building behaviour

(except customer-

specific requirements)

Table 6. Summary of the analysis of the existing collective housing movements

performance-based · undertaking both new construction and energy-efficient retrofitting is...

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