Performance contracting is an arrangement under which an Energy Services Company (ESCO) is engaged to review the energy consumption of a building or facility and to identify measures that will achieve energy savings. The level of savings is guaranteed by the ESCO. The ESCO therefore assumes the technical risks of implementing the measures.

A Performance Contract is a contract with an Energy Services Company (ESCO) to

1. Review the energy consumption of a building or facility
2. Identify measures that will achieve energy savings
3. Implement the measures and guarantee the savings

There are two general models of performance contracting:

1. Shared savings model: The ESCO will bear the cost of implementing the energy efficiency projects.  The ESCO then recoups the implementation cost from the company by sharing a fixed proportion of the energy savings proceeds with the company over a specified period of time. Refer to these presentation slides on Shared Energy Savings Performance Contracting (SESP) for more details.
2. Guaranteed savings model: The implementation costs are borne by the company but the ESCO provides a guarantee that the energy efficiency projects will achieve the promised energy savings. Any shortfall in savings will therefore be made up by the ESCO. Refer to these presentation slides on Guaranteed Energy Savings Performance Contracting (GESP) for more details.