Net zero pledge to be required for UK government contracts

Out-Law News | 15 Jun 2021 | 4:45 pm | 3 min. read

Contractors looking to pick up UK government contracts worth more than £5 million a year will also need to commit to achieving net zero carbon emissions by 2050 and detail their environmental management measures during the performance of the contract, according to new mandatory guidance issued by the government.

In a procurement policy note (PPN) released earlier in June, the Cabinet Office has announced that suppliers bidding for certain high value procurements under the Public Contracts Regulations 2015, advertised on or after 30 September 2021, will need to submit their carbon reduction plans so as to demonstrate their technical ability to perform relevant contracts tendered by central government departments, executive agencies and non-departmental government bodies. This new requirement follows the recent government trend of seeking to raise the significance of climate factors within public procurements, including in the Cabinet Office’s issue of the Construction Playbook in December 2020.

PPN 06/21 (8 page / 220KB PDF) applies where the advertised contract value, averaged over the life of the contract, exceeds £5m per year, excluding VAT.  It will only apply to framework agreements and dynamic purchasing systems where it is anticipated that the individual value of any contract to be awarded under the framework agreement or dynamic purchasing system is greater than £5m per year, excluding VAT.

Kotsonis Totis_March 2020

Dr. Totis Kotsonis

Partner, Head of Subsidies, Procurement, Trade Agreements and Trade Remedies

The government's initiative is laudable, demonstrating as it does the desire to ensure that key government contracts take adequate consideration of the net zero agenda.

The carbon reduction plan must contain a commitment to achieving net zero by 2050 for UK operations, and provide the supplier’s current emissions for the sources included in Scope 1 and Scope 2 of the global GHG Protocol – direct greenhouse gas emissions, and indirect emissions associated with the purchase of electricity, steam, heating or cooling – and a defined subset of Scope 3 emissions. There are five Scope 3 emissions categories to be reported on: business travel, employee commuting, waste generated in operations, upstream transportation and distribution and downstream transportation and distribution. The emissions to be reported on are the six greenhouse gases covered by the Kyoto Protocol on climate change, not just carbon dioxide.

Additionally, the plan must set out the environmental management measures that the supplier will have in place and which will be in effect and utilised during the performance of the contract. It is intended that suppliers will only require one Carbon Reduction Plan, which can be used for all procurements where this PPN applies.

The requirement to provide a carbon reduction plan during the selection stage will not apply where carbon reduction considerations are not related or proportionate to the contract. However, the Government expects that in the majority of contract awards environmental and carbon reduction considerations would be relevant.

Commenting on the PPN from a procurement perspective, procurement expert Dr Totis Kotsonis of Pinsent Masons, the law firm behind Out-Law, said: “The government's initiative is laudable, demonstrating as it does the desire to ensure that key government contracts take adequate consideration of the net zero agenda”.

“This initiative should also be seen in the light of the government's National Procurement Policy Statement (PPN 05/21 (3 page / 273KB PDF)), which requires all public procurers to ensure that their procurement strategies take into consideration, among other things, how to tackle climate change and reduce waste”, he said.

“At the same time, it would be useful for certain aspects of this new policy initiative to be clarified further. For example, in the context of a consortium arrangement, there might be questions as to why each of the consortium members should be required to demonstrate their technical ability in this way, if only one of them will ultimately be responsible for the delivery of the goods, works or services under the contract. Ultimately, of course, such clarification issues do not take away from the importance of this initiative in the context of achieving net zero," Kotsonis said.

Separately, infrastructure and decarbonisation expert Stacey Collins of Pinsent Masons said: “This is a really significant step forward in terms of the UK government looking to ensure its supply chains are focused on the transition to net zero. You need to be able to measure your green-house gas emissions in order to change them, and the carbon reduction plans require suppliers to undertake that measurement. Perhaps the most important element of this new policy is that it provides a template for other procurers, particularly in the private sector, to consider when procuring in the UK or globally.”

Collins Stacey Nov_2019

Stacey Collins

Partner

Perhaps the most important element of this new policy is that it provides a template for other procurers, particularly in the private sector, to consider when procuring in the UK or globally.

Collins welcomed the broad scope of the requirements.

“It’s great to see that the carbon reduction plans will cover all greenhouse gases, not just carbon dioxide, which is often focused upon. It’s also important that defined categories of Scope 3 are included in the requirements, which means that suppliers will need to take account of their own supply-chain’s emissions,” he said.

“As a result, Tier 1 suppliers should look to require similar commitments and information to be provided by their sub-suppliers. That’s not as easy as it sounds, and Tier 1 suppliers are likely going to need to educate and support their supply chains to transition to lower-carbon solutions, as well as to provide the necessary data to feed into the carbon reduction plans,” Collins said.

“Of course, many suppliers will welcome this new requirement from government, as they will have already set net zero targets and have plans to reduce their greenhouse gas emissions against that target. However, it’s a huge wake-up call to suppliers that have been slow to realise the inevitability of needing to fully embrace the net zero transition,” Collins said.