THE OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE
WASHINGTON. D.C. 20301-8000
September 30, 1988
PRODUCTION AND
LOGISTICS
(L/EP)
Defense Energy Program Policy Memorandum (DEPPM) 88-2
MEMORANDUM FOR DESIGNATED ENERGY OFFICIALS OF THE OFFICE OF THE
SECRETARY OF DEFENSE, MILITARY SERVICES,
ORGANIZATION OF THE JOINT CHIEFS OF STAFF, AND
DEFENSE AGENCIES
SUBJECT:
Private-Sector Financed Defense Energy Contracts
PURPOSE: To establish minimum documentation requirements for
requests for approval of privately financed Defense energy
contracts.
DISCUSSION: Contracts for privately financed energy or energy
supply facilities are becoming increasingly important in meeting
the energy needs of Defense installations. Long-term (up to 30
years-) contracts for such facilities are authorized by 10 USC
section 2394, which requires that all such contracts must be
approved by the Office of the Assistant Secretary of Defense
(Production and Logistics) (ASD(P&L)). To assure expeditious
review and approval, it is necessary that all packages submitted
be complete, accurate, and formatted consistently. Energy supply
projects are unique and technically complex, requiring
considerable in-depth analysis. When they are further
complicated by the use of private financing techniques, the
evaluation of the economics supporting the use of private
financing instead of military construction funding greatly
increases the necessity for a standard, rigorous review.
POLICY: It is Department of Defense policy to encourage the use
of private-sector energy contracts, subject to applicable laws
and regulations, that represent a savings to the government.
PROCEDURE : In support of this policy, each Department of Defense
( DO D) Component will establish a procedure to ensure that all
private-sector energy contracts submitted for approval are
accurate, complete, and represent the least costly, life-cycle
alternative to the government. This procedure shall include
review by the Service Acquisition Executive of the findings of
the Head, Contracting Activity. Enclosed is a listing of
standard requirements for each project package submitted for
ASD(P&L) approval under the authority and requirements of 10 USC
sect ion 2394.
oo Identification of the relative interest in the project
t o a l l p a r t i e s , i . e . , specific portions of cost stream
and benefits of the total project to be experienced by
all affected parties, D O D, local community, local
u t i l i t i e s , other customers, etc. This is particularly
relevant to contracts for large cogeneration and
municipal refuse-derived fuel facilities.
o The record of the negotiating meeting held after the call
for “best and final offers.”
o The Request for Proposal (RFP). (It is extremely
important that the RFP allow the widest range of fuels
and operational possibilities to satisfy the
In accordance with
installation’s requirements.)
perennial guidance from Congress, all forms of coal will
be considered, at least initially, as fuel sources.
o A copy of the proposed contract documents, including any
leases for Military land to be utilized. (Note, such
leases are required if military lands are to be used.)
o A summary of unfunded contingent liability, i.e., the
amount of money that it would cost the Service to
terminate the contract for convenience of the government.
Care must be taken to identify all such potential costs,
such as un-depreciated plant value, termination costs
under power purchase agreements, costs to other customers
of the service provider or bond issue costs, if
specifically agreed to by the Service in the contract.
The benefit to the Service for agreeing to each of these
liabilities should also be made clear in this section.
*
Private-Sector contract requests for approval must be
submitted to OASD(P&L)L/EP in five complete copies with adequate
time to allow an in-depth review and approval process (minimum of
30 days). I f t h e r e q u e s t s f o r a p p r o v a l a r e c o m p l e t e a n d
accurate, the review and approval will be accomplished rapidly,
allowing Congressional notification and contract award within the
originally negotiated timeframe.
STANDARD DOCUMENTATION REQUIREMENTS FOR PRIVATE-SECTOR FINANCED
ENERGY CONTRACTS
*
All requests for approval of privately financed energy
contracts under the authority of 10 USC 2394 shall include, as a
minimum, the following sections and specific information:
Executive Summary - a brief but complete description of the
proposed project, the major technical and economic benefits
justifying this alternative, and the timetable for implementing
the project.
Project Overview - a description of the basic Defense
requirements to be satisfied, the alternative proposals
investigated, and the costs, risks, and benefits of the
recommended proposal.
Economic Analysis - a detailed display of the project economic
costs and savings incorporating all of the economic analysis
requirements contained in the latest energy economic analysis
policy guidance. This section must clearly and succinctly
demonstrate that the proposed contract provides the most
l i f e - c y c l e , cost-effective energy source which meets the
installation’s needs. A sensitivity analysis of the impact on
project economics of possible variations in any significant
constraints or assumptions will also be included. Attachment A
provides a representative display of all appropriate annual cash
flows which would simplify review of the relative economic merits
of such projects.
Project Technical Summary - a complete technical summary
including all assumptions and constraints utilized throughout the
project development. Environmental, socio-economic, andcommunity support network evaluations should be included as
appropriate.
Also include any other pertinent documentation that
will make the review and approval steps faster and easier.
Acquisition - should contain the following:
0
A summary of the acquisition process to-date, to include:
oo The Contracting Officer’s justification of noncompetitive procurement, if applicable.
oo The requesting Service counsel’s and contracting
officer’s declaration as to the proper form and
legality of the contract documents.
oo A statement of contract term and reason for that
specific term.
oo A brief summary of the default and termination terms
and associated costs as they affect both the
contractor and the government.
ACTION: Addressees are requested to submit to the Office of the
Assistant Secretary of Defense, Production and Logistics (Energy
Policy) (DASD/L)(EP), their formal implementation of this
guidance within 90 days of issuance.
Enclosure
Deputy Assistant Secretary
(Logistics)