Procurement strategies

Procurement Strategy Description
Life Cycle Cost (LCC) In order to balance initial up-front capital cost and operational costs over a product’s lifetime, it is good practice to consider Life Cycle Cost (LCC). This allows a fairer comparison between products, taking into account their likely energy performance, and prevents simple selection of the cheapest model that meets the bid specifications. Appropriate verification and certification is likely necessary to ensure legitimacy of supplier’s LCC claims and calculations.
Output-based procurement Sometimes the type of technology (for example in lighting – metal halide, fluorescent, LED etc.) is less important than the end use service the product provides (for example lumens/m2). The bid itself may not ask for a given technology, only being concerned with the final end-use. Suppliers can specify any technology (including proprietary) but also the specific end-use metric. As with the LCC approach, appropriate testing and certification upon receipt will be needed.
Marketplace creation This applies to organizations or consortia that have large buying power. Such organizations can create a marketplace and stimulate the demand for energy efficient products and services. For example, if a group of companies (or a multinational company with multiple sites) ask to implement LEDs for lighting and agree to procure from a given vendor for a project and agree to use the same vendor for future projects as an incentive. Such an approach will often help to bring down costs.
Energy use warranties Typically, product warranties cover basic operational parameters, such as functionality or equipment life. One procurement strategy is for organizations to ask for an energy-use warranty, whereby suppliers are required to indicate the energy use of a product under given operating conditions.
Performance-based warranties Similar to an energy use warranty, a performance-based warranty provides additional recourse for poor equipment performance. Typically achieved by creating an escrow account of approximately 10% of the total fee (similar to what may be done for a defects and liability period), with a portion of the final payment held for 6 to 12 months to guarantee product performance.
Energy Supply Contracting A procurement model where the overall operation and maintenance of a technical energy system (such as HVAC) is outsourced to a contractor who in turn sells the output (e.g. steam, heating/cooling, lighting in terms of joules, cooling per m2, lighting per m2 per hour) at a pre-negotiated price. This is a service option, but can be a versatile and powerful tool to ensure lowered energy costs in a more flexible manner such that a third party supplier is liable for the performance risk.
Energy Service Companies (ESCO) An energy service company (ESCO) can be a commercial business such as a utility company, equipment supplier, contractor or a not-for-profit business1. An ESCO contract can range from design through to the commissioning of energy equipment, including the implementation of energy efficient projects, technologies, and equipment to a customer. Typically, the contract may involve considerable capital cost and risk which is borne by the ESCO (minimizing the capital outlay and risk for the customer) in return for a portion of the savings derived from lowered energy use. Such compensation is typically contingent upon demonstrated performance in terms of energy cost savings or other performance measures.


1 United Nations Environmental Program Sustainable Buildings and Climate Initiative, 2014. Green the Building Supply Chain. Available online