Developing decarbonisation efforts under the Government’s Carbon Reduction Schedule

What does the Government’s Carbon Reduction Schedule cover?

On 18 March 2024, the UK Government published Procurement Policy Note (PPN 01/24) – a new Carbon Reduction Schedule (the “Schedule”) – containing guidance and optional precedent standard terms and conditions to help support the delivery of decarbonisation objectives.   The PPN applied with immediate effect to all ‘In-Scope Organisations’ (such as Central Government Departments and their Executive Agencies and Non-Departmental Public Bodies) but can be used by other public sector contracting authorities.  The Schedule is intended to be considered by In-Scope Organisations alongside wider sustainability obligations and incorporated into Government contracts, including construction contracts and professional appointments, where appropriate/relevant and proportionate to do so.

The Schedule provides a framework to assist parties to establish, monitor, and assess a Supplier’s decarbonisation performance under a contract.   This would apply to construction, engineering and infrastructure projects and includes optional requirements around contract-specific greenhouse gas emissions (“GHG emissions”) reporting; the setting of emission reduction targets; and monitoring/verification of the reduction of GHG emissions throughout a project’s lifecycle.   PPN 01/24 aligns with the requirements of the earlier PPN 06/21 which required Suppliers bidding for major Government contracts worth over £5 million to confirm certain net zero commitments and to publish a Carbon Reduction Plan at an organisational level.   It also builds upon core themes included within the Construction Playbook, for example building smartly and sustainably and “green” delivery.

PPN 01/24 and the associated Introductory Guidance Notes promote the use of early market engagement with the supply chain on projects, however parties will need to review and discuss the project and contract-specific requirements prior to including these provisions wholesale into their contracts or appointments.   For instance, the PPN and its associated guidance expressly recommend that an assessment be completed as to the:

• In-Scope Organisation’s maturity of understanding of carbon reduction initiatives and how to use or monitor these;
• Supplier’s readiness and understanding of the above, together with the Supplier’s ability to introduce effective measures (whilst giving due consideration to how burdensome the requirements may become to the overall supply chain);
• In-Scope Organisation’s governance processes and the impact or implementation of the measures, including any associated incentivisation;
• Value and estimated carbon GHG emissions connected with the contract (noting that certain types of projects or contracts are better suited to impactful carbon reduction measures); and
• Content and criticality of the contract.

Commentary

At first glance, some of the requirements included in the Schedule appear to be based upon earlier suggestions coming from the built environment industry, such as by The Chancery Lane Project (i.e. specifically the proposed Gain-Share and Net Zero Modification clauses).   Whilst the provisions in the Schedule are clearly intended to support the UK’s environmental and net zero objectives and have been positioned as being practical and easy to follow, our view is that they are not particularly straightforward to use directly from the Schedule in contracts or appointments without careful thought and discussion between the parties. It will therefore be important to discuss the project and contract-specific requirements and risks as part of the negotiations and to reflect the parties’ agreement in the drafting.  The standard definitions and optional clauses will also require careful review prior to finalisation of contracts or appointments, particularly to address the various placeholders, to complete accurate and consistent cross-referencing, and to confirm the obligations on the respective parties.

Government guidance indicates that the Schedule will be incorporated into certain Government Model Contracts (issued by the Government Commercial Function and Legal Department for use by Government Departments and public sector organisations as part of future commercial activity). However, it could also be used on existing contractual arrangements via appropriate contract variations. It is therefore possible that clients, contractors, and consultants will see at least some of the clauses proposed in their future construction contracts or professional appointments.  Whilst we’re yet to see how the Schedule will be used or amended in practice, it certainly signals another step towards collaboration and formal terms and conditions aimed at supporting decarbonisation of the built environment.

It is therefore likely that we will see elements of the Schedule, or the suggested industry clauses they are based upon, being discussed or used in a range of wider construction and commercial contracts and not just in the public sector space going forward.  In addition, in the UK we have seen industry standard contract forms include environmental and sustainability-related provisions in the form of NEC4 PSC Optional X29 and the elevation of environmental and sustainability considerations as a mandatory requirement in the new JCT Design and Build Contract (2024 Edition).  It will also be interesting to see whether such carbon reduction aims and requirements will become more stretching in the future and how these might be actively implemented and managed, particularly when compared to the UK’s net zero target under the Climate Change Act 2008.

Please contact the authors should you have any questions on this article or when navigating or considering the new Schedule in conjunction with your contracts or appointments.