November 18th, 2016
by Alex Forrest
The UK public sector procures a huge amount of goods, services and capital items. HM Treasury’s latest estimate of gross current procurement was £213 billion, whilst gross capital procurement was £55 billion. Eunomia recently highlighted the potentially enormous gains to be made if this substantial sum – 15% of GDP – could be deployed to purchase products and services (including construction, furniture, ICT and vehicles) with good environmental credentials: it could provide a major toe-hold in the market for greener options, and call forward innovation when used tactically. Are there real signs of this happening in the UK?
In Scotland and Wales, the public sector has been tasked to address the environmental cost of their purchases. The Procurement Reform (Scotland) Act and Well-being of Future Generations (Wales) Act ensure that costs and benefits across the whole lifecycle of products and services are taken into account during procurement.
Approach with caution
No such legislation is in place in England, but the new Procurement for Growth Balanced Scorecard system launched by the Crown Commercial Service (CCS) in October 2016 provides a framework which enables major government procurements to consider the impact of purchasing requirements, balanced against social, economic and environmental considerations. The guidance is intended as a tool, which government departments should use in designing major works, infrastructure and capital investment procurements. How likely is it to succeed in delivering circular economy benefits?
In this age of government austerity, the opportunity to make savings might be expected to be the most powerful driver of engagement in the circular economy agenda. Indeed, compared to traditional ‘linear’ (buy-use-dispose) models, circular economy business models (CEBMs) offer the potential for helping organisations achieve resource productivity gains, cut costs and generate revenue, through a variety of innovative approaches. There are five key circular economy approaches:
- Products as services – access to products without retaining/owning material assets (dematerialisation);
- Renewable inputs – using more secondary (e.g. recycled) materials and refurbished/remanufactured components;
- The sharing economy – e.g. through software platforms to allow sharing of vehicles, equipment, office space etc.;
- Product life extension – through design for durability, repair/maintenance, re-use and re-manufacture; and
- Recovering value at end-of-life – e.g. effective recycling to maximise value from materials/components.
Cards on the table
The CCS scorecard includes a set of strategic themes, which represent priority policy areas linked to cost and sustainability outcomes, some of which link well to the adoption of these CE approaches. Examples include:
- Lifetime costs – the evaluation of bids should be on a whole life cost basis, not just the initial price, and including externalities linked to the products/services/works during their lifecycle.
- Energy efficiency/climate change impact – the evaluation of bids should consider the consumption of energy and other resources, and cost externalities linked to the supply, including the cost of emission of greenhouse gases and climate change mitigations.
- Resource efficiency – incorporation of efficiency requirements into the procurement process ‘in a proportionate manner’, that considers:
- Reducing material consumption and wastage;
- Increasing reused/recycled content;
- Use of products with low embodied carbon and water;
- Optimising durability; and
- Enabling energy and water efficiency during construction and in-use.
- Waste and Recycling – encouraging the procurement of innovative, cost-effective products, services and business models in accordance with the waste hierarchy.
All this is encouraging, but sadly little of it is new. Government Buying Standards have provided guidance on considering resource efficiency impacts associated with procurement for several years. The Greening Government Commitments already oblige government departments to incorporate Government Buying Standards into contracts, with a focus on energy efficiency. The scorecard’s scope is also very limited: it is directed only towards central government departments, and designed for procurements with a value greater than £10 million. That leaves a great deal of public sector purchasing unaffected.
Scores of opportunities
Of course, there is little to stop the new scorecard being adopted as a model of good practice much more widely. Local government procurement teams, for example, could use the tool as a way of balancing their social value and economic growth imperatives, whilst addressing the broader environment impacts associated with their expenditure.
But the prospects for this are slim, as public bodies remain reluctant to move away from conventional models based on procuring at the lowest price, abstracting from whole-life costs and externalities. In part this is due to inertia, but it can also be difficult for purchasers to obtain clarity regarding the practical risks and likely whole-life costs of different options.
Overcoming this should be a high priority for cash-conscious buyers. Our recent work to support the development of business cases has found substantial cost savings are available through alternative approaches, including those that embrace the circular economy. We see major opportunities for authorities that are willing to break away from more traditional evaluation approaches and consider how they can shape the market. However, doing so can mean moving away from tried and tested procurement practices and run of the mill solutions.
An important first question is whether a public body needs to procure the product in question purely for its own use. There are several impressive examples of public bodies making substantial savings through shared solutions. This allows the cost of buying or leasing equipment that is used intermittently (but predictably) to be split – say by two council departments. Vehicle ‘pools’ are a well-known example, but furniture reuse between public bodies is just as straightforward, provided that a small amount of buffer storage space is available. Public bodies might need help working out how to implement sharing in novel settings, and to understand the scope for reuse and sharing software solutions to make the whole system run smoothly.
Please re-lease me
It may not always be necessary to buy products that can be leased instead. This can also offer savings, which may make a transition to a more efficient, lower-cost technology, more affordable. Pay per lux lighting models, for example, make LED lighting affordable by avoiding the upfront investment costs while yielding savings on energy bills.
It may not be necessary to buy new, if remanufactured or refurbished goods can be obtained without detriment to quality or service life. Such products are generally 20% to 50% cheaper than the equivalent new item, according to our recent work with Sustainable Procurement Ltd on an as yet unpublished study for ZWS and other clients. Related case studies for the Ellen MacArthur Foundation suggest that furniture manufacturers are able to sell remanufactured products at a 20% discount.
When buying new is the only option, public bodies can benefit from advice on how to produce specifications that favour more durable and repairable products. Eunomia staff developed WRAP Better Appliances guidelines that show that average product lifetimes can often be extended by 40%, say from 5 years to 7 years. More durable, more repairable items are also often more reliable, cutting the costs of disruption associated with product failure. They may also have higher residual value, due to their greater potential to be refurbished and sold or reused at the end of their first life. As a result, more durable products can give rise to better return on investment, even if the initial cost is a little higher.
Despite measures such as the balanced scorecard, the public sector is still only in the foothills of its climb towards genuinely green procurement. A preference for choices that are perceived as low risk, particularly for purchases in what are perceived as mature markets (IT equipment, lighting, highways), can hinder innovation. If the public sector is to play the crucial role of which it is capable, shaping the market through its procurement practices and its influencing role, it will need more than just passive guidance or positive case studies.
The legislation-driven approach adopted in Scotland and Wales provides a more powerful incentive, but for even this to make a difference, procurement teams need the benefit of disruptive, creative input. Crucially, that needs to come early enough in the process to influence the specification of the product to allow greener solutions to be designed in. If the public sector leads the way and stimulates the market, it will not be long before others follow and real green shifts in the design of products and services can be achieved.