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:
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.
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
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:
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:
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.
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?)
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.