How Does Solomon Compare Contractor Bids?

Many of Solomon Energy’s clients are exploring major capital projects in the range of $2 to $30 million in total contract cost. That is the likely cost of engineering, permitting, construction and commissioning of solar photovoltaic (PV) systems that generate from 1 to 15 Megawatt of electricity.

With this kind of financial commitment, small wonder that our clients want to research alternatives.  It is normal for our clients to ask:  How do I compare competing offers from solar and other energy efficiency contractors?   And how can we help them?

In some cases our clients intend to self-finance these projects, using their own lines of credit. In others they wish to rely on developer financing, either paying the cost through a lease payment over the 15-25 year term of the contract or paying a cost per kilowatt hour of energy produced under PPA or Power Purchase Agreement.

Even if they will be financed by a developer, these projects are not for the faint of heart. They require a huge commitment by our client and all of its stakeholders: shareholders, bankers, management and in some cases the beneficiaries of their work such as students, patients, and worshippers.

In order to reach a consensus among such a large group of stakeholders it is necessary to build confidence that:

  • the solar PV project will provide long-lasting financial benefits;
  • the project will be built, will work and do what it was intended to do;
  • the project will provide continuing benefits for its 15-25 year life and will not become obsolete soon after it was built; and
  • the cost of the project is reasonable and competitive.

In order to build up confidence among our clients’ stakeholders, and to help guide them to a decision, Solomon Energy will frequently conduct an RFP or Request for Proposals process. In the RFP process we will solicit proposals or bids from numerous solar developers and contractors. The purpose of the RFP goes beyond getting the best price although that is certainly part of it.

Benefits of an RFP Process

An RFP provides numerous benefits to our clients as we help them manage the process. We as advisors could assemble a lengthy report that touches on many of the issues. But a process that invites multiple viewpoints will build confidence that we and our clients have not missed important alternatives. Decision-makers hesitate when they fear they have missed something; the RFP process helps ensure that we have thoroughly gathered the facts for making an intelligent choice.

Among other things, the RFP

  • Highlights different approaches that developers might take to the problem (for example, number of PV panels, configuration on the roof);
  • Introduces practical ways to combine alternatives or additional solutions such as cogeneration, LED lighting, chillers, and geothermal;
  • Helps test assumptions by inviting multiple calculations of potential savings;
  • Encourages a debate over the relative benefits of different equipment specifications (e.g., solar panels (245 watt or 305 watt, with or without micro-inverters);
  • Brings to the table different financing approaches and encourages a debate about their relative merits;
  • Helps clarify the market prices for different components of the project, which are constantly changing (e.g., PV panels, inverter, engineering, labor);
  • Avoids the potential conflict of interest that might exist or might be perceived if some of the decision-makers are tied to a developer or a vendor; and
  • Identifies not only the most experienced contractors but also those who have the time to complete the project (after all, speculation about the best contractor and the best prices will be theoretical if we can’t get the project built).

Casting the Net

The best RFP process would be a waste of time if we did not solicit – and then receive – proposals and bids from the best developers and contractors. Solomon Energy pays considerable time making sure that it reaches out to the most experienced and capable contractors in our clients’ region. We look for a number of criteria in prospective bidders:

  • Experience, not only in solar PV but in the utility territory where the project is located but in buildings or on land similar to that of our client;
  • Reputation for quality and timeliness;
  • Financial strength to ensure that the project will get started and will be completed;
  • Availability of personnel to take on the engineering and completion of the project.
  • Then we wait for responses. Fortunately our history and reputation in the business generates responses from the best contractors!

Evaluating the Responses

The RFP will ask prospective bidders many questions about the project. Once the bids are in – and the deadline for proposals is past – we will open the replies and prepare a detailed apples-to-apples comparison of the key strengths and weaknesses of each contractor. Price is not the only factor. Indeed, the lowest price could be an illusion if a contractor cannot perform.

Here are the key factors we evaluate and compare:

  • Competitors’ experience with solar and with projects like the specific one being undertaken?
  • Experience working in the state, utility territory, county and town, including familiarity with the permits required to be drawn
  • Experience working with the local utility and filing and obtaining interconnection agreements
  • Specifications of panels proposed to be used
  • Size of PV system and proposed configuration
  • Warranties that will come with PV panels and credit-worthiness of the manufacturers (think Solyndra: The best warranty is worthless if the manufacturer goes bankrupt)
  • Credit-worthiness of the proposers and ability or willingness to provide a performance or surety bond to guarantee completion if it should have financial problems in the middle of a project
  • Whether the solar contractor intends to build the project with its own crews or to subcontract
  • Proposed start date and projected completion date
  • If desirable, type of financing available

Clarifying Responses

No RFP process is simple, as many of our clients learn. Rarely are responses complete. Answers are often confusing or ambiguous. Some questions may not be answered, either because they are omitted or because we forgot to think about a small detail in preparing the RFP package (yes we sometimes make mistakes!).

After the bids are opened we will often spend a couple weeks clarifying with bidders details in their responses which we need to make a fair and accurate comparison for our client. During this period we must be very careful not to share with proposers the details of their competitors’ quotes as many of these are proprietary to the companies that participated in the RFP (although in the case of municipal RFPs the wining bids must frequently be available for public inspection under state Freedom of Information laws.

Negotiating Contracts

Based on our comparison of the bids we will present our clients with a recommendation of the top two or three proposers.

We do not present a single choice because we cannot be sure that the bid we think is the best will, in fact, be a practical choice. The bid is only a statement of intentions. The contractor is not bound until it executes a contract with our client. And that contract may take weeks to negotiate. As the saying goes, “The devil is in the details.”

We work with our clients to help negotiate contracts that protect our clients from important risks. (See, e.g., What Does Solomon Look For in a PPA?)

Making the Award

Only after comparing the bids, clarifying them, and negotiating final contracts will we be in a position to make our final recommendation. At that point our client, too, should be ready to award the project to a solar developer or contractor.

The decision can now be made with confidence that all important issues have been considered and all viable alternatives have been explored.