Many businesses are often challenged with how to deal with their aging facilities and infrastructure. Simultaneously, reducing overall operating costs often conflicts with a facility’s maintenance needs. As a facility matures and equipment begins to falter, the need for repair or replacement can increase overall maintenance costs.

When faced with lack of funds, companies often address only the most pressing needs within an existing or reduced budget. On the surface, this short-term approach seems to make financial sense. Maximizing revenue is paramount for most companies, and their facilities are typically viewed as a cost of doing business. Spending that drives revenue will typically carry more weight than facility improvements.

However, a company’s facility can have a significant effect on many aspects of a business that can impact the bottom line. For example, failing equipment can disrupt production processes, decrease product quality, and increase operating costs. Further, the state of a facility can impact employee safety, health, and overall satisfaction, leading to higher turnover and increased employee acquisition, training, and retention costs.

Despite these quantifiable and intangible impacts, deferred maintenance remains the default approach when funds are limited. Although it is one of the largest assets on a company’s balance sheet, most companies cannot quantify the impact their facilities have on financial health, other than on the cost side of the equation.

What if a company could improve its infrastructure needs and increase cash flow without requiring capital investment? One possible solution is Energy Savings Performance Contracts (ESPCs).

How ESPCs Work

Performance contracts have been leveraged in the public sector as a way to improve infrastructure without capital appropriations. Financed by third-party dollars and implemented by Energy Service Companies (ESCOs), these agreements utilize the energy, operations, and maintenance savings the project produces in order to offset both the cost of the infrastructure and the debt service. ESCOs can also guarantee savings, thereby further reducing risk for the business.

Although federal agencies typically refer to ESPCs as budget-neutral projects, ESPCs can achieve savings long after the equipment and debt service is paid off. In fact, these contracts can often be structured to deliver positive cash flow from the start of the project.