Procurement is playing an increasingly strategic role as a lever for sustainable development and social and environmental responsibility. Greater regulation on sustainable procurement in the public sector, including significant changes to the EU Directive in April 2014, are driving this change.This comprehensive guide to sustainable procurement by practicing legal experts Colleen Theron and Malcolm Dowden distills key developments in EU and UK public sustainable procurement legislation, government guidance and policy; provides an introduction to sustainable procurement more broadly; provides case studies and practical examples on contractual aspects of procurement; shows you how to set up a sustainable procurement strategy; and contributes to the development of sustainable procurement policy. There is also increased emphasis on "clean" supply chains in the private sector, as best practice seeks to mesh with public sector requirements and reduce the risk that bids for public contracts might be undermined by adverse environmental impacts or social misconduct along the supply chain.Private sector companies should act now to establish best practice sustainable procurement principles to minimize the risk of litigation; several international standards are embedding the principles of sustainable procurement into their requirements.The book also offers practical examples of what sustainable procurement entails, whether the organization is bidding for public sector contracts, in need of meeting tender requirements, looking to obtain certification for a standard, or is simply seeking to improve its supply chain management and implement best practice.
About the Author
Colleen Theron is tri-qualified as a solicitor in England, Wales, Scotland and South Africa, and holds an LLM in environmental law from the University of Aberdeen (with distinction). Since 1996 she has advised on environmental issues in complex property and corporate transactions, including public sector and MoD matters, in her career as an environmental lawyer in the city of London. The Legal 500 and Chambers recognize Colleen as a leading environmental law practitioner. Colleen retains a role as consultant to law firms and lectures on environmental and sustainability law at Birkbeck University, London.
Malcolm Dowden is a Solicitor, combining practical legal work as Consultant to City of London law firm Charles Russell LLP with his role as Director of Law Programmes with the rapidly growing international legal training business Law2020. His work for Charles Russell LLP has also included regulatory and legislative drafting for a Commonwealth government. Through Law2020 Malcolm is accredited by the Solicitors Regulation Authority to provide professional training. He has also delivered master class sessions for Asian Legal Business, accredited by the Singapore Institute of Legal Education.
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Strategic Sustainable Procurement
An Overview of Law and Best Practice for the Public and Private Sectors
By Colleen Theron, Malcolm Dowden
Do SustainabilityCopyright © 2014 Colleen Theron & Malcolm Dowden
All rights reserved.
WHY DO PRIVATE SECTOR ORGANISATIONS need to understand and adopt public sector procurement principles and procedures? Quite simply because many large private sector organisations are seeking access to the estimated &8364;1000 billion a year worldwide trade flows from public procurement, and those private sector bidders must ensure that they, and their supply chains, meet the requirements set by contracting authorities which are, in turn, driven by the need to comply with procurement law, regulation and policy objectives.
The strategic role of purchase and supply as a lever for sustainable development and corporate social and environmental responsibility is increasingly important. It is not only manifested in greater regulation on sustainable procurement in the public sector, including significant changes to the EU Directives adopted in April 2014, requiring implementation within two years by EU Member States. There is also increased emphasis on 'clean' supply chains in the private sector, not least to reduce the risk that bids for public contracts might be undermined, or even ruled out that the pre- qualification stage, by adverse environmental impacts or social misconduct along the supply chain. Private sector companies are also increasingly seeking to establish best practice sustainable procurement principles to minimise the risk of litigation. Several international standards are embedding the principles of sustainable procurement into their requirements as well. In both the public and the private sector there are moves to improve the environmental and social performance of companies through supply chain management.
However, sustainability and sustainable development are neither the sole nor even the principal objectives of procurement. Indeed, until relatively recently public sector procurement procedures could not legitimately be used to advance broader social policy objectives such as environmental performance or sustainability unless a clear and objective connection could be made with 'value for money'. The use of public sector purchasing power as a lever for broader policy objectives depends in large measure on the ability to move from evaluation and award criteria geared to the lowest price and towards criteria designed to identify the Most Economically Advantageous Tender (MEAT). The MEAT approach allows procurement professionals to achieve the 'five rights' – the right quantity of the right quality at the right time, from the right source and at the right cost.
Beginning with legislation, international standards and the scope for legal challenge, this book provides direct and actionable guidance to professionals who need to write sustainability specifications, design and implement evaluation and award criteria and manage delivery of contracts, using risk management enhanced by adopting a more sustainable approach. A key issue to be tackled by organisations over the long term will be addressing the relationship between sustainability and value creation.
During a series of preliminary workshop sessions that led to production of this book, we developed and discussed a series of case studies designed to contextualise, explore and test the principles. They are set out below, and referred to throughout the text.
Sustainable Procurement Case Study
The Central Counties Purchasing Organisation (CCPO) is one of the UK's largest public sector professional buying organisations. It operates on a not-for-profit cost recovery basis and is committed to delivering best value to its customers, suppliers and local communities. CCPO is also committed to the promotion and adoption of e-procurement and to embedding the principles of sustainable procurement.
CCPO primarily serves:
the education sector (schools, academies, colleges and universities)
central government agencies and ministries
the NHS and emergency services ('blue light' services)
CCPO is currently working on the following matters, intended to serve as best practice models:
Procurement of energy solutions for local authority housing and education:
The overall brief is to achieve measurable reductions in 1) energy costs, 2) greenhouse gas emissions and 3) energy efficiency ratings. A key challenge for CCPO is to achieve those results across a mixed portfolio of properties. Participating contracting authorities are also keen to promote local employment and business opportunities and to demonstrate strong sustainability credentials. To that end, CCPO has been instructed so far as possible to consider how far the overall project can be broken down into lot sizes likely to attract bids from small and medium-sized enterprises within the areas served by the contracting authorities. There is also a strong policy directive from the contracting authorities to ensure that the process promotes the development of innovative technologies and techniques.
Procurement of catering services for a major new leisure and conference facility associated with a new arena to be used by a premier league ice hockey team and as training facilities for the national ice skating association's elite skaters:
The venue is to be used for conferences, weddings and other large-scale social events. The ice rink is convertible for use as a concert venue. Freehold ownership of the scheme is to remain with the contracting authority. Catering services are to be procured directly by the contracting authority and sublet to private sector organisations using the facilities, including the national ice skating association. CCPO's remit is to ensure that the catering services meet the highest standards of sustainability, and the contracting authority has made it clear that it is committed to supporting the Fair Trade initiative and to ensuring that any events held at the facility can be certified 'carbon neutral'. They are also wondering if they should adopt ISO20121 as a benchmark.
Procurement of clothing, linen and laundry services for hospitals and 'blue light' services:
CCPO recently commissioned a research report that highlighted the environmental impacts of laundry services for hospitals and 'blue light' services. Based on that report a group of contracting authorities within CCPO's region have commissioned CCPO to develop a procurement approach that would significantly reduce the relevant impacts. CCPO's remit specifically includes an instruction to consider issues such as the sourcing of uniforms, linen and other materials required for the efficient operation of the relevant services.CHAPTER 2
Defining Key Concepts
What is sustainable procurement?
THE WORKING DEFINITION of sustainable procurement proposed by the Sustainable Procurement Task Force is: 'A process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.' Sustainable procurement is broader than, and must not be confused with the term Green Public Procurement (GPP), which emphasises only the environmental impact throughout the lifecycle of goods, services or works. Sustainable Procurement isn't simply about being 'green'; it includes social and economic considerations, too.
A joint paper by PWC and Ecovadis ('the PWC report') describes sustainable procurement as 'taking into account economical, environmental and social impacts in buying choices. This includes optimising price, quality and availability, but also environmental life-cycle impact and social aspects linked to product/services origin.'
The significance of environmental life-cycle impact was highlighted by a project that formed the basis for our case study concerning the procurement of clothing, linen and laundry for hospitals and 'blue light' services. That case study stemmed from an exemplary project conducted by the City of Zurich in 2008–09. The project involved the procurement of workwear, initially for the police force.
A pilot was conducted in which 525 100% organic cotton shirts were purchased and presented for user and laboratory tests. On the basis of better performance and user satisfaction, a tender procedure for the annual purchase of approximately 4000 shirts was launched, using the following criteria:
Subject matter of the contract: Procurement of 100% organic cotton police shirts.
Specification: 100% organic cotton, non-iron long and short-sleeved shirts with detailed finishing. Fabric must comply with the Eco-Tex Standard 100 Class II or equivalent. The criteria underlying this standard set limit values for potentially harmful substances at all stages of processing for textiles which are in direct contact with skin. The standard also sets requirements for the use of biologically active and flame-retardant products and minimum levels of colour-fastness.
While the raw material costs for organic cotton are higher than non-organic, the overall effect on the price of the finished garments is minimal – the cost per shirt is approximately 10% higher. However, the higher initial purchase price must be assessed in light of the improved quality and corresponding longer life expectancy of the shirts. 1000 police officers have benefited from these higher-quality and lower-impact garments since 2009.
The production of non-organic cotton is an intensive agricultural process, with the use of pesticides and mineral fertilisers affecting soil and water quality and biodiversity, as well as generating greenhouse gas (GHG) emissions. Further GHG emissions accrue at the spinning, dyeing and finishing stages, as well as during transportation and use of the finished product. Zürich identified a potential difference of 5 kg CO2e per kilogram of cotton fibre when organic and non-organic production methods were compared. Further reductions were realised by the use of 20% hydropower at the spinning mill and heat recovery at the dye house. While the total volume of GHG emissions saved is relatively low, the cost per tonne of CO2e reduction compares favourably with other possible measures (such as building improvements), making the purchase of textiles a 'low-hanging fruit' for authorities wishing to implement greener purchasing.
BS8903 defines sustainable procurement as 'good procurement and should not be viewed as an abstract, idealistic goal but as a practical and achievable objective for all organisations, large and small'.
The Queensland Government defines sustainable procurement as 'a process whereby organisations meet their needs for goods, services and capital projects, in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society, the economy and the natural environment'.
All of these definitions highlight the integration of economic, social and environmental issues as part of the consideration in developing a sustainable procurement strategy to deliver value for money.
Are sustainable and ethical procurement the same thing?
According to the CIPS, ethical procurement can be defined as procurement processes that respect fundamental international standards against criminal conduct, such as bribery, corruption and fraud and human rights abuses, including human trafficking. In companies that apply an integrated approach to managing their risks, ethical procurement requirements will fall under their sustainability framework and within their sustainable procurement strategy.
To address business risk of unethical procurement, many businesses will have established a code of conduct, setting out the minimum standards and parameters for procurement. Codes of conduct refer to an expected way of behaving. They can be supplemented by mainstreaming their ethical values throughout the procurement policy. For example, the procurement policy may include identifying those practices that are unacceptable (such as slavery and fraud) and how the organisation will deal with conduct that violates the organisation's policy and any code of conduct signed up to by the supplier.
Organisations should therefore ensure that principles set out in their codes of conduct are reflected in their procurement strategy and purchasing decisions.
To what extent are ethical considerations relevant to sustainable procurement?
The screening of bids based on ethical considerations is often limited to a requirement for certification that a supplier has not recently violated any laws that prohibit bribery, environmental compliance or employment issues. There is often a gap that under the current requirements where business ethics do not extend to compliance with human rights. In the International Corporate Accountability Roundtable (ICAR) summary study on what human rights are applicable to US government procurement, they suggest that this gap should be made more clear and potential or real violations in a tenderer's supply chain should be evaluated.
Nonetheless, the tendency to require ethical considerations in tenders is likely to grow. An example of how a government and governing organisations have had to respond to concerns about the plight of workers is during the building of the 2022 FIFA World Cup football stadiums. Qatar Supreme Committee's Workers' Charter was published in early 2014 and requires that any company wanting to bid on the construction of any of the Qatar World Cup construction projects will have to comply with the requirements of the Workers' Charter and demonstrate how they are going to implement its requirements. Key to the ability to submit any tender will be a Workers' Charter Plan which includes requirements that the bidding company will ensure that they work with accredited recruitment agencies and that working and living conditions meet certain requirements. Whether these requirements are enforced in practice as build up towards the 2022 event continues remains yet to be seen.
Why should companies focus on ethical and sustainable procurement?
This book will consider the drivers for both the public and private sectors to embed sustainable procurement practices. Nonetheless, it is worth highlighting from the outset that companies are increasingly focusing on improving their supply chain management and transparency in order to:
minimise legal risk (e.g. bribery and corruption)
minimise operational risk (e.g. strikes; product unavailability)
prevent reputational damage (e.g. arising from 'sweat shop' labour conditions)
avoid incurring costs from negative externalities (e.g. pollution clean ups)
The impact of the disaster of the Rana Plaza, the 'Happy eggs' scandal, and the increased media attention given to exploited workers, forced labour and human trafficking is increasing the pressure on organisations, including public authorities, to understand and prioritise dealing with human rights and ethical issues, as well as environmental impacts.CHAPTER 3
The Legislative Position
THERE ARE EU AND UK REGULATIONS that govern the sustainable procurement process by public bodies.
Incoming changes to the law
At the time of writing, those regulations are undergoing a process of significant change. Three new directives came into force on 17 April 2014, marking the start of a two-year period within which EU Members States must implement new rules into national law.
Directive 2014/24 applies to public sector entities and will replace the existing Directive 2004/18/EC (and, as a result, the 2006 Regulations referred to below).
Public sector entities will be obliged to comply with new rules that include:
abolition of the distinction between Part A and Part B services and its replacement with a more limited set of specialist services (e.g. legal, social and educational services) which will be subject to a 'lighter touch' regulatory regime, requiring OJEU advertisement only if the contract value exceeds a threshold currently set at &8364;750,000.
express provision for early market engagement or 'pre-commercial' procedures designed to identify possible sources of supply or innovation.
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Table of Contents
Who is this book for?What does this book do?Introduction 1. Defining key concepts2. The legislative position3. Sustainable procurement policy in the EU and UK4. Sustainable procurement: The role of standards5. Sustainable procurement: Drivers, benefits and barriers for public and private sector6. Developing the sustainable procurement strategy7. Developing a sustainable procurement policy8. The procurement process9. Practical considerations during selection and award stages10. Smart SPP11. Practical considerations and examples of the pre-qualification questionnaire, tender specification and weighting criteria12. Practical considerations for contract management13. Key issues to consider when reviewing contractsConclusionsAppendixReferences and Notes