Australian Government Introduces New Sustainable Procurement Policy: Implications and Obligations

Written By Harrison Bond

31 July 2024

Introduction

As Australia moves forward with legislating its commitment to transition to net zero and develop a more circular economy, there are a number of important implications for industry to be aware of. As of 1 July 2024, some crucial amendments to the Commonwealth Procurement Rules (CPRs) have come into force. Per paragraph 4.5, non-corporate and prescribed corporate Commonwealth entities (that is, various government bodies identified under the Public Governance, Performance and Accountability Rule 2014), when assessing value for money during the procurement process for projects/initiatives, must consider the ‘environmental sustainability of the proposed goods and services’, as well as make use of the Sustainable Procurement Guide where necessary. Said guide also serves as a ‘companion document’ designed to support and facilitate the implementation of the Environmentally Sustainable Procurement (‘ESP’) Policy, also in force as of 1 July 2024 (specifically applying to construction services at or above AUD$7.5 million – Phase 1). While these changes only apply directly to Commonwealth/Australian Public Service (APS) entities, their impact will be felt across the economy by nature of the many large scale projects currently owned and operated by Government bodies, with numerous private sector Suppliers currently employed to conduct the various works. The policy and guide have been designed with the purpose of mitigating the negative environmental impact of Australian Government procurements. All APS entities and their Suppliers will now be required to undertake specific steps to prove ‘environmental claims’ and avoid greenwashing, while demonstrating consistent compliance with the ESP Policy.

Sustainable Procurement Guide and ESP Policy: An Overview and Implications for Government Owners and Private Suppliers

Sustainable Procurement Guide (‘The Guide’)

The Guide is in place to instruct Government Officials to take into account environmental sustainability at every step of the procurement process, spanning from planning, scope of works and tendering all the way through to contract management, project conclusion and performance reporting.


The Guide identifies the following factors as important ‘value for money’ considerations, specifically with regards to minimising negative environmental outcomes and adhering to circular economy principles (where resources are kept within the value chain for longer periods):

  • Greenhouse gas emissions

  • Reduction of waste

  • Energy consumption

  • Use of recycled products

  • Reduction in harmful substances

  • Packaging

  • End-of-life recycling


The Guide further recognises ‘Construction Services’ as a high opportunity category for achieving increased levels of environmental sustainability.

Finally, The Guide outlines a number of steps that ought to be taken by Government Officials in order to generate environmental sustainability opportunities throughout the procurement process:

Step 1: Include environmental sustainability into the planning/beginning stages of your procurement practice.

  • Implement and utilise ‘demand management strategies’ to reduce excess consumption.

  • Ask the following initial questions:

    • Do potential suppliers have the capacity to materially demonstrate that their goods or services ‘contribute to circularity, minimise greenhouse gas emissions and positively impact the environment’?

    • Are there alternative suppliers that provide comparable goods or services which utilise more ‘recycled content’?

    • Is the use of harmful chemicals or materials avoided?

    • Does the goods manufacturing process utilise renewable resources?

    • Are there any options to ‘extend the longevity of the goods’ (Reuse, repair, repurpose, modification, extended warranty, etc)?

    • What is the disposal process for the goods at the end of useful life? Does the prospective supplier have a take back scheme

    • What is the impact on ‘operational greenhouse gas emissions, energy and water use’?

    • Can the goods be procured as a service, as opposed to purchasing the equipment outright (preventing inefficient allocation of resources)?

    • If applicable, is packaging minimised and made with recycled/recyclable materials?

 
Steps 2-6 provide specific guidance on addressing a number of these initial questions once the procurement process commences, and a very brief overview is provided below:

Step 2: Market Research and Engagement

  • Conduct market research to aid in developing the ‘fit-for-purpose’ requirements in the Approach to Market (ATM) tendering documentation and preliminarily identify businesses that focus on environmental sustainability.

Step 3: Document environmental sustainability in a Procurement Plan

  • The Guide mandates that environmental, climate and circularity considerations be contained within ATM documentation, supplier briefings, and contracts, and must be ‘well-defined, verifiable, and allow for fair competition’.

    • The ‘verifiable’ requirement is particularly relevant for private-sector businesses and Suppliers, who must demonstrate and provide evidence of environmental sustainability performance (such as proof of policies, relevant results, etc). This will include a review of the environmental claims of businesses to ensure they are not unsubstantiated.

  • Government Officials must request a filled-out, draft ‘Supplier Environmental Sustainability Plan’ during the tendering process that covers all of the requirements prescribed by step 4 below, with an example document included on page 44 of The Guide.

Step 4: Approach the Market

  • Officials must specify tangible and achievable environmental sustainability requirements within all relevant tendering documents, typical examples include:

    • Suppliers are participating in a validated ‘product stewardship scheme’ if relevant.

    • Necessary sustainability certifications or ISO standards have been achieved for buildings or fit outs.

    • Ecolabels (environmental labels) may be recommended to standardise sustainability performance across a project.

  • Officials are also required to utilise Life Cycle Cost (LLC) or whole-of-life cost assessments, and this must be reflected in all tendering documentation. This may mean that even if your business offers the lowest up-front cost, it may not necessarily be the lowest cost option over the life of the good/service due to a lack of an environmentally friendly disposal pathway.

  • Key Performance Indicators (KPIs) ought to be included in tendering documents/the Procurement Plan to track environmentally sustainable outcomes, with potential examples being:

    • Water efficiency

    • Reduced waste to landfill

    • Use of recycled content

    • CO2 abatement or storage

  • Further, evaluation criteria and reporting requirements are necessary to tangibly measure environmental sustainability. The criteria must encapsulate:

    • Qualifying Standards

    • Ratings

    • Quantifiability  

    • Fit for Purpose

  • Any notable risks that could be involved with implementing the Environmental Sustainability Plan must be identified and included within the Sustainability Plan, with a detailed risk mitigation strategy to be agreed upon and outlined in full.

  • Standard/example clauses regarding environmental sustainability requirements that may be included in ATM documents, Supplier Procurement Plans and contract terms can be found in Appendix B of The Guide.

Step 5: Evaluate and Debrief

  • Implement and assess preliminary sustainability evaluations of prospective Suppliers (based on the LLC method and the evaluation criteria outlined above).

    • For high-risk or complex procurements, this may require seeking out external expert advice to validate claims

Step 6: Contract Management

  • All previously specified standards, KPIs and compliance measures must be clearly included in the contract and effectively monitored throughout the contract’s life.

    • This may require the appointment of compliance teams, procedures that address underperformance, check-in meetings and dates, hiring of subject matter experts to evaluate environmental sustainability performance at different project stages, etc.

    • Further, contract managers should actively communicate with Suppliers to present suggestions regarding innovations, alternative technologies or new ways to improve sustainability, while collaboratively working together to ensure best practice.

Step 7: Share your Experience

  • Success stories, teachings and lessons should be shared to the public to work towards consistently improving industry sustainability standards:

    • Case studies

    • Articles

    • Verbal updates at departmental meeting

Environmentally Sustainable Procurement (‘ESP’) Policy

The ESP Policy is supported by the Sustainable Procurement Guide, and its primary purpose is to measure the environmental outcomes of the Australian Government’s procurements and establish an official reporting framework. Much of the ESP Policy is covered by the Sustainable Procurement Guide, with the three key focus areas being: climate, environment and circularity. The most important parts of the policy in terms of practical application and implications for Government Owners and Private Suppliers are the ESP Policy performance indicators, as well as the reporting requirements.


The success of the policy will be evaluated according to the following indicators:

  1. The extent to which greenhouse gas emissions are minimised.

  2. The extent to which there is an increase in the use of circular economy principles.

  3. The number of Suppliers who are contracted to provide goods and services to the Australian Government that have a Supplier Environmental Sustainability Plan (SESP) in place.

 
Reporting Requirements for Relevant Entities (Government Owners):

  • Responsible for ensuring Suppliers adhere to the required reporting for the relevant metrics (outlined previously in the Guide, including sustainability KPIs and evaluation criteria, to be contained within the Supplier Environmental Sustainability Plan).

  • Must undertake ‘assurance activities’ to guarantee the data and information provided by the Supplier is complete, accurate and not misleading.

  • Must submit reports to the Department of Climate Change, Energy, the Environment and Water (DCCEEW) every 6 months (February and August), to be included in ‘whole of government reporting’


Reporting Requirements for Suppliers:

  • Suppliers are required to report to Relevant Entities (APS entities/Government Owners) on all contracts to which the ESP Policy applies (as identified previously, this currently includes construction services at or above AUD$7.5 million, with the policy scope to be expanded on July 1 2025).

  • Per the Supplier Environmental Sustainability Plan agreed upon during the tendering process, Suppliers must report against the relevant metrics, using the reporting template that will be included in the ATM documentation.

  • For contracts that span multiple years, the Supplier and Relevant Entity may agree at their discretion the frequency of reporting. However, at the very minimum, a ‘completed reporting template must be submitted at least twice per financial year and at the end of the contract’ (data must be actual observations and not estimates).

  • Suppliers are responsible for recording and tracking this reporting information on behalf of any of their subcontractors, while ensuring data is received in an accurate and timely manner.

  • Further, Suppliers must provide the agreed upon Supplier Environmental Sustainability Plan to the DCCEEW if requested.

Executive Summary

Regulatory obligations surrounding environmental sustainability are ramping up in Australia as we approach 2030 and endeavour to reach net zero by 2050. As of July 1 2024, the procurement obligations of the Australian Government (relevant bodies, corporations, authorities) have become far more stringent, with a strong focus on environmental sustainability. Amendments made to the Commonwealth Procurement Rules (CPRs) to incorporate sustainability considerations have been accompanied by the release of Phase 1 of the Environmentally Sustainable Procurement (ESP) Policy along with the existing Sustainable Procurement Guide. In combination, the implications of these new rules will be felt across Australian industry, as Government Owners and Private Suppliers alike will need to adapt to the much stricter reporting requirements, engage in research and development to establish more sustainable construction processes, implement more efficient and accurate data collection systems, engage with subject matter experts and environmental scientists, and more. This article has provided an overview of the compliance measures that should be considered, including the 7 steps outlined in the Sustainable Procurement Guide, along with the official reporting requirements prescribed by the ESP Policy.

For further advice, detail and insight regarding incorporating specific sustainability compliance methods within various procurement and contract management processes, please contact HJA’s highly experienced industry professionals.

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Harrison Bond
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