Sustainable procurement A working definition QGCPO Department of Housing and Public Works
Sustainable procurement: An overview Page 2 of 7 Sustainable procurement One of the three foundational objectives of the State Procurement Policy (SPP) is to advance the priorities of government through its procurement, including certain social, economic and environmental objectives. Sustainability considerations are also built into a second objective of the SPP, forming part of non-cost factors for consideration in value for money decisions. Overall the SPP reflects a commitment to protecting the environment, as well as doing business with ethical and socially responsible suppliers. In practical terms, Queensland Government budget sector agencies spent $13.9 billion with external to government suppliers during 2011-12. This level of spending, together with SPP requirements, presents government with both the opportunity and the obligation to promote social, environmental and economic sustainability. It can do this through raising social and environmental standards, encouraging innovation, stimulating the market and promoting new technological solutions for the advancement of sustainable development, and supporting suppliers to government who are socially responsible and adopt ethical practices. Working definition for the Queensland Government The SPP contains provisions intended to facilitate the integration of the practice of sustainability into the procurement of goods, services and construction, supported by an operational concept to assist in implementing these provisions. A range of supplementary guidance resources have also been developed to assist agencies in implementing sustainable procurement. To further assist agencies in integrating sustainability into their day-to-day procurement, the QGCPO has developed the following working definition for sustainable procurement: Sustainable procurement is 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. This definition of sustainable procurement (adapted from the UK document Procuring the Future, Sustainable Procurement National Action Plan Recommendations from the Sustainable Procurement Task Force, Department for Environment, Food and Rural Affairs, June 2006) provides a broad and flexible definition of sustainable procurement and hence allows for interpretation and application in a variety of contexts. This definition aligns with the sustainable procurement principles contained in the SPP and the Australia-New Zealand (ANZ) Government Framework for Sustainable Procurement, and forms the basis of a working definition for Queensland Government. Outcomes of sustainable procurement Sustainable procurement in the public sector is dependent on incorporating an appreciation of the wider goals of society into procurement. It is proposed that by using procurement to promote the goals of sustainability social, environment and economic government can help to foster a better society, composed of sustainable communities, more able to respond to the global economic market.
Sustainable procurement: An overview Page 3 of 7 Sustainable procurement dimensions Sustainable procurement conceptually comprises three dimensions, sometimes referred to as the triple bottom line: social, environmental and economic sustainability. Implementing sustainable procurement involves balancing the different and sometimes competing priorities that occur across these three dimensions. Thus, during a procurement, certain aspects of sustainability may be prioritised over others, depending on the inherent nature of the goods/services, relevant sustainability impacts and supply market conditions. Below is an overview of each of these dimensions, and examples of benefits that can be achieved through incorporating that dimension within procurement. Social There are generally two ways in which the term social procurement is used: to indicate that an organisation has screened their supply chains to ensure that they are socially responsible and ethical, that is, that they do no harm in relation to social indicators such as labour conditions and human rights of workers to generate positive social outcomes with the purchase of goods, services and works, thereby value-adding to the procurement. Desirable outcomes/benefits (examples only): Promoting fair employment practices fair wages, workforce equality, diversity, avoidance of bonded labour. Fair trade and ethical sourcing practices ensuring that purchases are ethical and support fair trade and that supply chains do no harm in terms of labour standards. Promoting workforce welfare (e.g. health and safety, trade union membership). Creating employment and training opportunities (particularly among disadvantaged groups such as people with disability or mental illness, migrants, Indigenous) thus providing social inclusion. Social inclusion ensuring that marginalised groups are included and have opportunities to participate in local community and economy. Diversity and equality in the supplier market encouraging a diverse base of suppliers (e.g. minority or under-represented suppliers). Local sustainability building and maintaining healthy, strong communities, support social inclusion and enhancing wellbeing of local residents by generating local employment. Adapted from Social Procurement in Australia guide. Environmental Environmentally preferable goods and services are defined as those that have a lower impact on the environment over the life cycle of the good or service, when compared with competing goods or services serving the same purpose.
Sustainable procurement: An overview Page 4 of 7 There are significant variations in the sustainability impacts associated with different commodities. In order to ensure that damage to the environment is minimised, it is necessary to determine the impacts that are most significant for a particular commodity. Key environmental issues which might be considered over the life cycle of the goods/service include: energy use, and type of energy utilised water use and water quality impacts resource use, including the use of non-renewable resources volume and type of waste end-of-life options, e.g. recyclability, resource recovery impact on natural habitat level of toxic and hazardous substances/waste noise, pollutants and emissions. Desirable outcomes/benefits (examples only): Improved air quality by reducing or eliminating emissions to air (e.g. greenhouse gases, such as carbon dioxide, and other pollutants). Reduced use of water (e.g. water saving or efficiency). Improved water quality by reducing or eliminating releases to water (e.g. chemical pollution of water courses). Improved soil quality by reducing or eliminating releases to land (e.g. chemical fertilisers). Reduced demand of raw materials and natural resources (e.g. sustainable forestry, biodiversity). Reduced use of energy (e.g. energy efficiency, use of renewable energy). Reduced energy emitted (e.g. heat, radiation, vibration, noise). Reduced waste and by-products (e.g. recycling and waste prevention). Adapted from British Standard BS 8903:2010 Where it is not possible to calculate dollar benefits associated with environmental impacts, they can be described in other quantitative terms, for example: energy use (Kwh) usage (megalitres) resource use (kg per product) waste production (kg per product, or per cent of product) packaging type and quantity (kg per product) wastewater parameters (BOD, TSS, P, flow). Economic Sustainable procurement can contribute directly to economic (financial) outcomes including cost savings, for example: procuring goods and services that are more efficient to operate and thereby reduce operating costs (including consumables, energy, water and time)
Sustainable procurement: An overview Page 5 of 7 capital procurement that achieves reduced through-life costs, e.g. through reduced annual operating and maintenance costs re-examining requirements, and where appropriate challenging demand at source, so as to avoid procurement in excess of needs reducing end of life disposal costs and impacts driving supply chain efficiency and developing market competitiveness, innovation and capacity. Some products that may appear more expensive in terms of up-front acquisition cost may in fact provide greater economic benefit of the whole life of the product. This is examined in further detail below under the discussions on value for money and whole-of-life basis. Desirable outcomes/benefits (examples only): Reduced whole-of-life costs to achieve value for money, including cost savings (refer below to whole-of-life basis). Supply chain efficiency. Job creation (e.g. green technologies, use of local suppliers, creating markets for recycled products, back to work schemes). Supporting small and medium enterprises. Reducing entry barriers (e.g. facilitating open competition). Ensuring suppliers agreements are at fair and viable margins. Ensuring business continuity (e.g. supply chain resilience). Adapted from British Standard BS 8903:2010 Interpretative notes Value for money Value for money is one of the three foundation objectives of the SPP and is the core principle underpinning all Queensland Government procurement. The SPP requires that each agency must seek to obtain best value for money in its procurement, and states that the value for money assessment must include consideration of: contribution to the advancement of priorities of the government non-cost factors such as fitness for purpose, quality, service and support, and sustainability considerations cost-related factors including whole-of-life costs and transaction costs associated with acquisition, use, holding, maintenance and disposal. 1 The concept extends well beyond a comparison of the initial acquisition cost, requiring comparative analysis of all relevant costs and benefits across the life of the goods or services being acquired. Public sector decisions made purely on the basis of upfront costs may demonstrate false economy as they do not include full consideration of all costs and all benefits arising from a procurement decision. Therefore they do not demonstrate good stewardship of taxpayers money. The value levers that are important for a particular procurement should be identified and considered in relation to the overall cost and the outcomes the agency is seeking from the procurement activity. To fully consider value for money, both financial and non-financial impacts
Sustainable procurement: An overview Page 6 of 7 should be included in the cost-benefit decision. Thus, for example, benefits should more broadly include social and environmental benefits as well as dollar benefits (e.g. cost savings). Non financial benefits may be regarded as contributing value, and should be included in a procurement evaluation Sustainable procurement is a comprehensive approach to the interpretation of what is considered to represent value for money, thereby providing a mechanism for achieving value for money over the longer term and from a broader perspective. The relative importance given to the various elements of value for money will flow from the supply strategies developed as part of the agency s procurement planning process. These supply strategies may be developed for both individual procurements and for particular categories of procurement. Thus, the value for money assessment will require balancing the various elements of costs and benefits Whole-of-life basis A comprehensive assessment of value for money requires a whole-of-life perspective to be taken. A whole-of-life approach to procurement would consider impacts that occur: before point of purchase, that is, supply chain impacts that occur during manufacture and transport of the good/service up until the point of purchase. These are embedded within the good/service being acquired, and the sustainability performance cannot be changed by the procurer s consumption activities. during use, that is, the sustainability impacts of the good/service resulting from the use/consumption of the good or service. These impacts affect the agency s sustainability performance, e.g. energy usage, water usage, carbon impacts, rate of replacement or use of consumables. during disposal, that is the sustainability impacts associated with the end-of-life impacts of the goods. These include recycling of the goods, options for life extension, and hazardous substance content that affects disposal. The whole-of-life approach requires procurement decisions to take into consideration benefits and costs occurring over the whole-of-life of the product/service. 1 State Procurement Policy, 2010, pg 5 http://www.hpw.qld.gov.au/stateprocurementpolicy/pages.aspx Benefits may occur across the life cycle, so a whole-of-life approach should be taken with respect to identifying and evaluating benefits. In some situations goods/services with good sustainability performance will generate savings throughout their life through reduced requirement for maintenance/repair, reduced use of consumables, reduced running or energy costs, improved endof-life value or reduced social or health costs (e.g. reduced pollution or reduced waste to landfill). Other examples of whole-of-life benefits are reduced carbon emissions during use, reduced water consumption during use, reduced toxic waste, reduced use of non-renewable resources, improved social outcomes. Similarly, costs should be considered from a whole-of-life basis, i.e. include all costs associated with the purchase of a product or service over its lifetime; including acquisition costs and post
Sustainable procurement: An overview Page 7 of 7 acquisition costs associated with ownership, use, withdrawal from use and disposal. Examples of costs that are included in whole-of-life costs include: acquisition costs (initial purchase price, installation costs, and transport and logistics costs) operating costs (energy/water consumption, annual licence fees, maintenance costs, staff costs, cleaning costs, training costs, insurance premiums, environmental taxes, and also indirect costs, e.g. increased energy costs caused by inefficient IT equipment which produces more heat, resulting in increased air-conditioning use) disposal costs (site clean-up costs, refuse collection costs, recycling costs, disposal fees). Whole-of-life costing can be applied to demonstrate value for money outcomes where the: product with lower sustainability impact costs the same as, or less than, the original product that was purchased lower impact product costs more than the original but results in savings over time which offset its greater upfront cost (often the case for energy-saving devices such as low energy light bulbs or more efficient white-goods) lower impact product costs more, but the benefits outweigh the costs.