Procurement Hot Spot: President Obama's Executive Order to Federal Agencies Stimulates Procurement from Suppliers of Sustainable Goods and Services
On October 5, 2009, President Obama issued Executive Order (EO) 13514 mandating that federal agencies take a sweeping series of steps to address greenhouse gas (GHG) management, renewable energy use, water efficiency, pollution prevention, regional and local transportation planning, sustainable facility development, and electronics stewardship. Once fully implemented, the EO will fundamentally change the way the federal government does business, creating both challenges and opportunities for government contractors and vendors across all federal agencies.
This Alert is the first of a series relating to implementation of the EO and addresses potential impacts on government contractors of EO mandates pertaining to GHG emissions.
Reduction of GHG Emissions within and outside of Federal Agencies
The EO mandates that each federal agency develop and implement a plan to reduce GHG emissions that fall into three categories (Scopes 1, 2 and 3) by 2020. They are as follows:
- Direct GHG emissions from sources that are owned or controlled by the federal agency (Scope 1);
- Direct GHG emissions resulting from the generation of electricity, heat, or steam that a federal agency purchases (Scope 2); and
- GHG emissions from sources not owned or directly controlled by a federal agency but related to agency activities, such as vendor supply chains, delivery services, and employee travel and commuting (Scope 3).
Agency targets for reducing Scopes 1 and 2 GHG emissions are due in 90 days (January 3, 2010) and plans for reducing Scope 3 emissions are due in 240 days (June 1, 2010).
In seeking to reduce Scope 3 GHG emissions, agencies may require contractors to provide information on the carbon footprint associated with their goods or services, including supply chains. Indeed, it is foreseeable that agencies may favor “low-carbon” suppliers in making purchase decisions.
In this regard, the EO requires that agencies “ensure that 95 percent of new contract actions, including task and delivery orders, for products and services, with the exception of acquisition of weapons systems, are energy-efficient . . ., water-efficient, biobased, environmentally preferable . . ., non-ozone depleting, contain recycled content, or are non-toxic or less-toxic alternatives, where such products and services meet agency performance requirements.”
The EO also requires that agencies promote electronics stewardship in multiple ways, including use of procurement preferences for Electronic Product Environmental Assessment Tool (EPEAT) registered electronics products, procurement of Energy Star and Federal Energy Management Program (FEMP) designated electronic equipment, and the practice of environmentally sound disposition of all agency excess or surplus electronic products.
Finally, the EO requires that, within 180 days of the date of the order, the General Services Administration (GSA), in coordination with the Department of Defense (DoD), Environmental Protection Agency (EPA) and other agencies as appropriate, develop and provide recommendations regarding the feasibility of working with contractors to provide information that will assist agencies in tracking and reducing Scope 3 GHG emissions relating to the supply of products and services to the government. These recommendations also are required to explore:
- requiring contractors to register with a voluntary registry or organization for reporting greenhouse gas emissions;
- requiring contractors as part of the Central Contractor Registration (CCR) or other tracking systems to make available GHG inventories and descriptions of efforts to mitigate GHG emissions;
- using federal purchasing preferences or other incentives for products manufactured using processes that minimize GHG emissions.
As noted above, the EO sets aggressive deadlines (all within 240 days of the date of the EO) for multiple agency actions in compliance with the EO, including development of agency goals for reduction of GHG emissions, submission of agency Strategic Sustainability Performance Plans for achieving GHG emission reduction targets, and development of recommended federal GHG reporting and accounting procedures for agencies to use in carrying out obligations under the EO. Within 15 months of the date of the EO, agencies must establish and report to the Council on Environmental Quality (CEQ) Chair and the Office of Management and Budget (OMB) Director a comprehensive inventory of absolute Scope 1, Scope 2 and to-be-specified Scope 3 GHG emissions.
Impacts on Government Contractors
Much is unknown with regard to the scope of agencies’ ultimate implementation of the broad directives set forth in the EO. Implementation is expressly subject to the availability of funds, and, to date, no funds have been appropriated specifically for agency compliance with the terms of the EO. Moreover, while the EO requires prioritization of GHG reducing projects by return on investment, we are aware of no estimates of the anticipated costs of this investment.
However, any meaningful compliance by agencies with the requirements of the EO, almost certainly will result in:
- increased purchases by federal agencies of energy saving services, alternative energy solutions and energy saving calculation and monitoring tools;
- increased incentives relating to production of energy with reduced GHG emissions; and
- increased attention by traditional supply chain government contractors to the sustainable production of goods and services sold to the government, including purchases of downstream equipment, services and supplies, review of existing processes, implementation of new systems and development of compliance oversight related to representations made in federal procurements regarding sustainable production.
In the next 180 days, the government contractor community should seek to inform GSA’s recommendations under the EO regarding the feasibility of having federal contractors and vendors provide information that will assist federal agencies in tracking and reducing GHG related to the supply of products and services to the government, and the possibilities of requiring vendors and contractors to register with a voluntary registry for reporting GHG and requiring contractors to develop and make available its GHG inventory and description of efforts to mitigate GHG emissions.
In addition, the government contract community should seek to provide GSA and other cooperating agencies with comments regarding the use of federal government purchasing preferences or other incentives for products manufactured using processes that minimize GHG emissions. Relevant considerations include:
- The feasibility of fairly providing procurement incentives for reducing GHG emissions and sustainability;
- Recommendations regarding methods for defining reasonable and practical GHG emissions and sustainability metrics;
- Clarity regarding the necessity for and feasibility of visibility into multiple levels of contractor supply chain elements, including equipment, supplies and services originating outside the United States;
- Clarity regarding how both government contractors and non-government contractor commercial supply chain elements would be required to assess and represent sustainability;
- Recommendations on the reasonable extent of compliance burdens relating to representations in procurements relating to GHG emissions and sustainability;
- Input regarding the likely costs of ascertaining sustainability in both government contractors and non-government contract supply chain elements;
- Clarity regarding how agencies fairly could define levels of sustainability eligible for procurement preferences;
- Clarity with regard to how agencies fairly could perform cost/sustainability tradeoffs in competitive procurements;
- The necessity for standardization across agencies in defining sustainability and acceptable methods of ascertaining sustainability; and
- The need for continuing dialog between agencies and industry regarding agency obligations to reduce Scope 3 GHG emissions as required by the EO.