From 1 October, companies bidding for major government contracts must commit to achieving Net Zero emissions by 2050. With all eyes on the UK for COP26, this represents the UK Government’s latest attempt to use the public procurement rules to seek to “decarbonise the government supply chain” and drive its climate change agenda. In this post, we consider the scope of the rules and their implications for government contractors.
Scope of the new rules
The new rules, contained in Public Policy Note 06/21 (the Rules), will affect any UK or international business bidding for a public contract with a value of at least £5 million per annum (excluding VAT), where the contracting authority is a central governmental department, executive agency or non-departmental public body (In-Scope Organisations), and where the tender process commenced on or after 30 September 2021. They will also apply to framework agreements and dynamic purchasing systems where it is anticipated that the individual value of any contract to be awarded meets the same financial threshold. They will not apply where not “related and proportionate to the contract”, although no guidance is provided as to what this means in practice.
New requirements: Carbon Reduction Plan
Under the Rules, In-Scope Organisations must include a selection criterion in tender processes that requires bidders to provide a Carbon Reduction Plan (in the form set out in the PPN). Among other things, these Carbon Reduction Plans must:
- confirm the bidder’s commitment to achieving Net Zero by 2050 in the UK.
- set out “the environmental management measures in effect, including certification schemes or specific carbon reductions measures” that will apply when the bidder is performing the contract;
- set out the bidder’s “baseline emissions footprint” i.e. the greenhouse gases produced prior to the introduction of any strategies to reduce emissions;
- be approved by a director (or equivalent); and
- be published on the bidder’s website and updated regularly (at least annually).
Under the Streamlined Energy and Carbon Reporting Regulations 2018 (SECRR 2018) many large companies are already required to report on their greenhouse gas emissions. However, PPN 06/21 goes further by requiring a commitment to achieve Net Zero emissions by 2050 and the reporting of some “Scope 3 (indirect) emissions”, including business travel, employee commuting, transporting, distribution and waste for the first time.
The new Rules represent a significant step in the Government’s commitment to achieving its Net Zero target by 2050. The PPN emphasises that “environmental consideration and carbon reduction will be a factor in most, if not all, contracts”, suggesting that the new Rules are intended to become firmly embedded in public procurement processes.
They are another example of the UK Government’s willingness to harness the “power of the purse” and leverage public procurement to pursue its broader policy objectives (see our blog posts on eradicating modern slavery from government supply chains and maximising social value).
In terms of impact, many large companies will already be prepared to report on their emissions in light of the SECRR 2018. Many companies have also already made public commitments to achieve Net Zero (often sooner than 2050). For these companies, the key concern will be to ensure that existing commitments and reporting are appropriately demonstrated in their Carbon Reduction Plan.
Meanwhile, companies that have not already made such commitments or are not already reporting on their emissions, but are likely to want to bid for large public contracts, should start collating relevant information as quickly as possible in order to ensure that they have a Carbon Reduction Plan in place, approved at an appropriate level of seniority, in time to participate in the tender process.
The Rules are also likely to have a knock-on effect throughout the supply chain: subcontractors and suppliers for government contractors, in particular, are likely to come under scrutiny for the impact they will have on the company’s journey to achieving Net Zero, with ‘high emitting’ entities at risk of becoming less and less attractive business partners.