Energy-saving data center contract languishes under OMB hold

OMB put the brakes on a contract between the Energy Department and Lockheed Martin in March and has yet to explain its reasons, according to the affected parties.

data center cages

After investing millions of dollars into a contract to consolidate data centers and profit from the cost savings acheived, Lockheed Martin now sits idle waiting further explanation of why OMB put a hold on the project in March. (Stock image).

Energy savings performance contracts (ESPCs) have been widely used across the federal government to improve energy efficiency at major facilities' infrastructures, but a first-of-its-kind partnership between the Department of Energy and contractor Lockheed Martin aims to bring those same optimizations to data centers. Energy CIO Robert Brese earned an FCW Federal 100 award for his work in establishing such arrangements.

Here's how it could work: An energy savings company (ESCO) – in this case Lockheed Martin – identifies energy consumption metrics, discovers improvements and creates an energy savings project catered to the agency. The identified savings pays for the cost of the project, rendering capital and upfront investments unnecessary. The agency then would have a repeatable method for optimizing its data centers to specifications set forth by the Federal Data Center Consolidation Initiative, and would make good on President Barack Obama's energy savings projects memorandum.

There's just one problem with this first ESPC: DOE officials say that as they prepared in March to issue a task order to Lockheed Martin -- after going through more than a year's worth of work and completing the necessary approval processes -- officials at the Office of Management and Budget placed the project "on hold."

Reasons for the hold on the $70 million data center consolidation ESPC are not known, and OMB did not confirm or deny the hold to FCW. It is unclear whether OMB has the authority to place another agency's contract on hold.

As the ESCO for the project, Lockheed Martin's profits would have come directly from savings it guaranteed DOE. The optimization of two data centers – one in New Mexico and one in Maryland – projected to achieve a 70 percent reduction in energy consumption and generate another $6 million in annual lifecycle cost savings. Such savings would have paid the contract off in six years. The hold puts the company, which invested millions of dollars at its own risk, in the unenviable position of waiting for answers that haven't come yet.

"ESPCs address the challenges of data center consolidation most often cited by Federal CIOs -- lack of funds and uncertainty about the return on investment," said Roger Flanagan, Director of Energy Solutions for Lockheed Martin. "By competitively selecting a partner at the outset of project development, agencies can draw on industry expertise to significantly reduce large energy consumption and costs associated with IT operations."

The hold has also had a chilling effect on other data center ESPC efforts, according to Jennifer Schafer, executive director of the Federal Performance Contracting Coalition, an industry group that represents energy service companies. Three other major agencies – the General Services Administration, NASA and the U.S. Navy -- have selected ESCOs for their own data center optimization efforts, and others like the Department of Transportation have released notices of opportunity.

All are now looking at what happens with the DOE-Lockheed Martin deal. If it falls apart, Schafer said, the whole movement probably will.

"It's the first, and it would be incredibly awful for them to have a bad decision on this first one – the rest will die," Schafer said. "We won't do data centers in the federal government."

Paul Hamilton, vice president of government affairs for Schneider Electric, said his company is hoping to receive a task order soon from the Navy for work that includes data center optimization in San Diego. Schneider Electric is a big player in the world of data center infrastructure, and one of 16 ESCOs in the DOE's Federal Energy Management Program under an indefinite-delivery, indefinite-quantity (IDIQ) contract that previously did long-term modernization work like lighting.

Hamilton said its recent efforts in data center optimization will be for naught if the OMB hold continues indefinitely. "We're not waiting in the wings, we're actively developing those projects right now and proceeding as if it will get resolved," he said. "If it doesn't, then we've done a lot of work for nothing."

Hamilton's main criticism of OMB's handling of the issue is a lack of transparency.

No industry reps contacted by FCW, including Lockheed Martin and Schneider Electric, had seen or read any explanation from OMB for the hold. When contacted by FCW, officials from DOE said they had not received an explanation from OMB, a timeline for when a decision might come, or a detailed reasoning behind the decision to hold. OMB declined to answer those and other questions when posed by FCW.

"OMB provides guidance to agencies regarding the implementation of these memoranda," said an OMB spokeswoman, referring to the Federal Use of ESPCs and Utility Energy Service Contracts memorandum.

The hold also raised eyebrows because OMB has championed "innovative efforts" for agencies in recent months, with federal CIO Steven VanRoekel and others calling on agencies to do things like optimize data centers with increasingly tight wallets.

OMB has been criticized by GAO and congressional oversight committees for its poor leadership and lack of metrics in carrying out the FDCCI, which OMB once promised would save the government several billion dollars. A recent GAO report, released during a hearing of the House Oversight and Government Reform Subcommittee on Government Operations, stated only $63 million in documented savings and cost avoidance would be achieved by fiscal 2013's end.

And now ESPCs -- and OMB's hold -- are on the congressional radar as well.

On May 2, Senate Energy and Natural Resources Chairman Ron Wyden (D-Ore.) penned a letter to the White House calling for the increased use of ESPCs. In the letter, Wyden specifically urged OMB to approve "these and future projects in a timely manner in order to ensure that momentum continues toward achieving the $2 billion ESPC investment goal."

"ESPCs are a good deal for government," Wyden said. "These projects save money by reducing the cost of energy and operations in federal buildings, and they do not require any outlay of funds. For these reasons, I urge you to support a robust ESPC program and to reduce administrative barriers to the use of these contracts. In this time of serious budget constraint, I intend to do all I can to work with you in maximizing the use of performance contracting."