Procurement in a changing climate: Government requires carbon reduction plans from bidders
July 2021On 5 June 2021, the UK Government issued a Procurement Policy Notice[1] which will require tenderers for public contracts with a value above £5 million to demonstrate how they will act to reduce their carbon emissions. The PPN is intended to take effect from 30 September 2021.
Public procurement is a useful lever to help Government achieve certain policy goals, including those related to the environment and social change. In this case, bidders will risk disqualification from tenders if they fail to produce a satisfactory Carbon Reduction Plan (“CRP”) as part of their tender response.
The background to this PPN is Government’s target to achieve a reduction of at least 100% of greenhouse gas emissions (relative to 1990 levels) by 2050. That commitment was set out in a 2019 amendment to the Climate Change Act 2008. This is otherwise known as the ‘Net Zero’ target and the new policy will effectively require tenderers to match that commitment at an organisational level.
The policy will apply to contracts tendered by Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies. Aside from Government ministries, this will include a number of bodies charged with delivering infrastructure projects such as the Highways Agency, the Atomic Energy Authority and Network Rail.
It is envisaged that the PPN will apply to contracts where environmental considerations and carbon reduction are relevant. This could include most, if not all, contracts and therefore it is expected that in the majority of cases, the PPN will be observed. That may include, but is not limited to:
- contracts whose performance will have a direct impact on the environment;
- contracts which require the use of buildings by staff engaged in the delivery of the contract;
- contracts which require the transportation of goods or people used in the delivery of the contract;
- contracts which require the use of natural resources in the delivery of the contract.
Where the PPN does apply, bidders will be required at the selection stage to submit a CRP detailing their organisational carbon footprint and confirming their commitment to achieve Net Zero by 2050. The CRP must be signed off by an officer at director level (or equivalent). There is also an expectation that the CRP will be updated on at least an annual basis.
Key elements which must be covered in the CRP are as follows:
- the supplier’s current emissions for the sources included in Scope 1 and 2 of the Greenhouse Gas (“GHG”) Protocol, and a defined subset of Scope 3 emissions;
- provision of emissions reporting in CO2e (Carbon Dioxide Equivalent) for the six greenhouse gases covered by the Kyoto Protocol;
- the environmental management measures in effect, including certification schemes or specific carbon reduction measures adopted by the organisation, which will apply during performance of the contract; and
- publication of the CRP on the supplier’s website.
The PPN is accompanied by a more detailed Guidance Note which sets out the expectations on tenderers when formulating their bids, as well as a template CRP for completion by bidders in procurement exercises[2]. It should be noted that the template would require an extensive provision of data, including details on the organisation’s baseline emission footprint, emissions reductions targets and completed carbon reduction initiatives.
The Guidance sets out the questions which bidders should be asked at selection stage (some of which are pass/fail). It clarifies that a tenderer should only be barred from the process where they:
- fail to make an organisational commitment to reduce their emissions over time to achieve Net Zero by 2050;
- fail to declare their organisational Greenhouse Gas emissions in accordance with the required reporting standard;
- fail to provide a Carbon Reduction Plan which has been appropriately signed off; or
- fail to provide details within the Carbon Reduction Plan of the environmental management measures that will be applied in the performance of the contract e. fail to provide a Carbon Reduction Plan which meets the Technical Standard for completing a Carbon Reduction Plan.
It is also stated that the application of the PPN may be waived in exceptional circumstances, such as:
- where the market for a contract of this type is distorted/narrowed/struggling to such a significant extent that delivery of public services is likely put at risk, or value for money is likely to be severely compromised;
- where there is a civil emergency.
Helpfully, the Guidance permits a lighter touch for newer entrants into the market. Where an entity has been trading for less than 12 months, it will be enough for the supplier to pledge commitment to achieving Net Zero by 2050 and should publish a full CRP as soon as possible. Less helpfully, where a bid is submitted in consortium, every member of the consortium will need to provide their own individual CRP. The PPN will apply equally to UK and non-UK based bidders, although overseas based bidders will only need to detail their UK emissions and related targets.
For organisations active in government contracting, it is essential to assess the PPN as a matter of urgency and to take the steps needed to comply with it. Potentially, bidders will need to assemble large quantities of data in order to complete the template CRP for each bid. The effort required for sourcing and checking the data should not be underestimated. Yet time is in short supply with the PPN due to enter into force by 30 September 2021. Given the real danger of disqualification from lucrative contract opportunities, failing to prepare really could mean preparing to fail.
