How government is integrating environmental sustainability into procurements

Ensure you know the relevant local frameworks and policies

The private sector is increasingly being asked to demonstrate environmental sustainable procurement practices when bidding for government procurements – and then to deliver on its promises.

This Insight explains how recent developments in Victoria are shaping the way government evaluates tenders and monitors sustainability during project delivery and operation, particularly in infrastructure projects. It also flags other Australian governments' recent initiatives in this important area.

Key takeaways

To prepare for government tender opportunities in 2022, businesses should be aware of:

• government's rising expectations of bidders' environmental sustainability procurement credentials;
• increasing government trends to include contractual requirements to measure and monitor environmentally sustainable outcomes during project delivery and operational phases;
• the Victorian Government's recently published Sustainable Investment Guidelines (SIG), which will impact how future tenders are evaluated and infrastructure projects are delivered; and
• recent sustainable procurement policy and framework initiatives applying to other State and Federal Governments and agencies.

What is sustainable procurement?

Sustainable procurement is 'procurement that has the most positive environmental, social and economic impacts possible over the entire life cycle' (ISO 20400:2017 Sustainable Procurement – Guidance).

The Victorian Social Procurement Framework¹ (SPF) defines sustainable procurement practices as including:

• maximising recyclable/recovered content;
• minimising waste and greenhouse gas emissions;
• conserving energy and water;
• minimising habitat destruction and environmental degradation; and
• providing non-toxic solutions.

The SIG refers to sustainable investment as considering 'the optimisation of environmental, social and economic outcomes throughout an asset’s lifecycle'. It notes environmentally sustainable business practices in construction as including the following:²

• increased use of non virgin materials;
• construction methodologies that minimise disturbance to surrounding areas and people; and
• minimisation and treatment/reuse of waste including spoil.

The Federal Government defines sustainable procurement practices by reference to the following, which emphasise the entire life cycle of the product:

• devising strategies that reduce demand and extend the life of the product;
• planning what happens with a product at the end of the contract – ie how will it be reused, recycled or disposed of – to encourage potential suppliers to address this from the beginning;
• considering costs over the life of the good or service and policies in the planning process (such as potential increases in energy prices);
• encouraging sustainable solutions and innovation in tenders; and
• measuring and improving sustainability throughout the life of the procurement.

Why is there a focus on sustainable procurement in infrastructure procurements?

Environmental sustainability in government infrastructure procurements in particular is important because:

• the infrastructure sector utilises thousands of products and services from numerous suppliers and, with government spending millions of dollars each year on construction, sustainable procurement can have significant 'flow-on effects' and improve environmental practices in lower-tier suppliers; and
• it shifts focus from low cost to maximising value, leading to new and innovative ways of delivering projects with long-term environmental benefits.

Recent developments in Victoria

For some time, as part of the SPF introduced in 2018, Victorian officials have been required to include environmental sustainability objectives in the procurement of all goods, services and construction.³ This has involved officials adopting the recommended approach in the SPF for the inclusion of sustainable objectives into the procurement, as summarised in Table 1 below. These requirements are based on a scalable approach linked to project expenditure, and aim to achieve value for money (VFM) while minimising impact on the environment.

The introduction of the SIG in September this year now provides officials with specific guidance on how to embed environmental sustainability into infrastructure procurements and support obligations not only under the SPF but also other relevant policies. These include:

• the Circular Economy Policy (‘Recycling Victoria’) (February 2020), which is the Victorian Government's 10-year policy and action plan for waste and recycling. Key commitments in the policy will be implemented through the Circular Economy (Waste Reduction and Recycling) Bill 2021, which provides for stronger regulation of Victoria's waste and recycling sector, for more and better recycling, and less waste and landfill. The Bill will also see the establishment on 1 July 2022 of Recycling Victoria, a dedicated government business unit to oversee and provide strategic leadership for the waste and recycling sector;
• the Recycled First Policy, which requires bidders on government infrastructure projects to:⁴
  • demonstrate how they will optimise their use of recycled and reused materials against the Recycled First Policy; and
  • report on the types and volumes of recycled and reused products used; and
• the National Waste Policy 2018, which provides a framework for collective action by businesses, governments, communities and individuals until 2030. The policy identifies five overarching principles underpinning waste management in a circular economy. These include:
  • avoid waste;
  • improve resource recovery;
  • increase use of recycled material, and build demand and markets for recycled products;
  • better manage material flows to benefit human health, the environment and the economy; and
  • improve information to support innovation, guide investment and enable informed consumer decisions.

Other governments

Other governments have continued the growing trend of adoption of sustainable procurement policy initiatives. Relevant changes include:

• Western Australia: In June this year, the WA Government introduced its Social Procurement Framework, as well as new Western Australian Procurement Rules⁵ broadening the concept of VFM by requiring government agencies to seek the best VFM taking into consideration the Government's environmental, social and economic priorities. It also published the Western Australian Government: Environmental Procurement Guide (June 2021) to provide additional information and practical advice to state agencies on how to integrate environmental sustainability considerations into the procurement process.
• Federal: In December last year, changes to the Commonwealth Procurement Rules (CPR) further enhanced an existing requirement for officials to consider environmental sustainability when assessing VFM, by including the following new requirements:
  • consideration against the requirements in the Department of Agriculture, Water and the Environment’s 2021 Sustainable Procurement Guide⁶ (November 2020), where there is opportunity for sustainability or use of recycled content; and
  • consideration of 'whole-of-life costs', which could include (among other things) consumable costs, such as environmental sustainability of consumables, and decommission, remediation and disposal costs (including waste disposal).
• South Australia: The SA Government's Sustainability Manual (June 2019, updated July 2021 to relevantly incorporate, among other things, project sustainability assessment requirements, and suggested sustainability requirements for supplier prequalification, specification and evaluation) and Green Procurement Guideline (August 2021).
• Queensland: The Queensland Government’s Social Procurement Guide (May 2020), reflecting its commitment to social procurement under its broader Procurement Policy 2021, which updates an earlier policy, and includes both renewed and additional commitments to environmental sustainability in procurements.
• New South Wales: Transport for NSW's Transport Environment and Sustainability Policy (January 2020) and TfNSW Sustainable Design Guidelines (March 2019, updated March 2020). These policies support obligations on NSW Government officials under NSW's Enforceable Procurement Provisions (November 2019) that require them to have regard to environmental sustainability of proposed goods and services, as well as whole-of-life costs of the goods or services, when determining whether a procurement represents VFM.⁷
• ACT: The establishment of the ACT Government’s Government Procurement (Charter of Procurement Values) Direction 2020 Charter of Procurement Values (September 2020), which applies environmental responsibility values, and a commitment to reduce natural greenhouse gases and support transition to a circular economy. The ACT Government also published the Procurement Values Guide (September 2020), which references previously existing environmentally sustainable procurement obligations under the Sustainable Procurement Policy 2015.
• Northern Territory: The Northern Territory Procurement Rules (July 2020), which require government agencies to apply environmental protection principles to every procurement (principle 5).

Evaluating sustainability – Victorian SPF and SIG

For the Victorian Government, the SIG provides practical advice on how to incorporate SPF requirements and sustainable investment considerations in the planning, procurement and delivery stages of infrastructure projects. For the private sector, the SIG is informative on the methods it can expect government to use to deliver sustainable procurement objectives at different stages of a procurement. This enables businesses to prepare for continued participation in government procurement.

In this section, we look at government recommendations detailed under the SPF and SIG for tender evaluation, selection and negotiation.

SPF

Victoria's SPF includes three objectives related to environmental outcomes:

• environmentally sustainable outputs;
• environmentally sustainable business practices; and
• implementation of the Climate Change Policy objectives.

The SPF's procurement requirements, as they relate to environmental sustainability, are summarised in the table below.⁸ A scalable approach is applied based on estimated project expenditure.

Table 1

SIG

Consistent with the SPF, the SIG's recommendations are made by reference to three categories of projects:

• all projects;
• larger projects (including High Value High Risk (HVHR) projects); and
• priority or 'flagship' projects, and projects seeking to demonstrate improved efficiency or performance.

The SIG recommend that:¹⁰

• all infrastructure procurements use weighted evaluation criteria to favour businesses that support sustainable procurement objectives. For example, EOIs are increasingly seeking evidence of tenderers' current and expected recycling activities in line with the Circular Economy Policy, and also applying a specific comparative evaluation criterion for demonstrated understanding and alignment to such policies and the SPF objectives;
• all contracts include requirements on tenderers to achieve sustainable procurement objectives, noting that objectives should be defined using the 'SMART' principle; Specific, Measurable, Achievable, Relevant, and Time bound;
• for larger projects, including HVHR, government agencies should:
  • have a negotiation team capable of balancing sustainability objectives against other project objectives; and
  • ensure that sustainability objectives in the contract align with long-term sustainability outcomes during operation;
• priority or flagship projects, and projects seeking to demonstrate improved efficiency or performance, should include a contractual approach that incentivises tenderers to exceed contractual requirements for sustainability outcomes; and
• all infrastructure procurements should include operational requirements relevant to sustainability during the operational phase and delivery handover (documented with new accountabilities), and that rating tool certification should be used for larger projects at handover.

Managing and monitoring sustainability

Victorian SIG

This section details key impacts for the private sector for managing environmental sustainability outcomes during project delivery.

The SIG recommends the following:

• for all procurements, change control should mitigate risk during the construction phase of trading off sustainability-related scope to address unforeseen issues such as latent conditions;
• that sustainability outcomes be tracked and reported in all procurements;
• for HVHR projects, projected operational sustainability performance of the asset should also be monitored throughout project delivery (including detailed design);
• for priority or flagship projects, or projects seeking to demonstrate improved efficiency or performance, there should be ongoing oversight of contractors, which should include sustainability metrics in reporting; and
• where a sustainability rating tool has been adopted, there may be a need for the project to transition from a ‘planning’ rating to an ‘as built’ rating, or equivalent, which should be set out in the contract.

Requirements for government agencies to report on how they are satisfying sustainable procurement rules and policies necessarily require the above environmental monitoring and reporting obligations to be incorporated within government contracts. For example, it is a requirement under the SPF for Victorian departments and agencies to monitor and report against social and sustainability outcomes, which explains the emphasis in the SIG on monitoring sustainability outcomes.

Other governments

Other recently published South Australian and Federal guidelines recommend contracts include the following, to support government monitoring and reporting requirements:¹¹

• requirements for suppliers to provide annual environmental or sustainability reports, or report on key environmental performance indicators during the term of the contract;
• requirements for suppliers to provide a quality test of the end product, service or goods according to specified KPIs;
• government rights to conduct site visits to monitor the supplier’s performance;
• scheduled regular reviews of performance against KPIs and targets; and
• requirements for the supplier to provide regular reports tracking improvements in the supply chain or identifying potentially adverse impacts.

What this means for you

Given recent initiatives from Australian governments on environmentally sustainable procurement practices, businesses should:

• note that there isn't currently a uniform approach to sustainable procurement across Australia, and therefore businesses will need to understand the relevant local frameworks and policies in place when preparing tenders;
• appreciate the complexity of bidding and contract award as a result of the greater array of evaluation criteria being applied by government;
• consider opportunities to harness environmentally sustainable procurement practices within their organisation to demonstrate relevant evaluation criteria; and
• review internal systems and procedures, to see how environmental sustainability objectives and outcomes can be monitored within the organisation during project delivery.