Sustainable Procurement Guide

Sustainable Procurement Guide

Report prepared by ECO-Buy Limited
Level 4, 460 Bourke Street, Melbourne VIC 3000

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Table of Contents

List of figures 5

List of tables5

PART 1: KEY CONCEPTS6

Introduction 6

What is sustainable procurement? 6

Principles for procuring sustainably8

Key concepts in sustainable procurement 9

Benefits of sustainable procurement12

Policy context for the Australian Government13

National Waste Policy13

Australian Government financial management framework14

Options for including sustainability in procurement decisions15

Agency policies 16

Sustainability issues in purchasing decisions17

Additional reference and guidance material 18

PART 2: GUIDE TO SUSTAINABLE PROCUREMENT19

Including sustainability in procurement20

Getting started20

Putting it into practice 21

Checklist 29

Additional reference and guidance material30

Including sustainability in value-for-money assessment 31

Getting started31

Putting it into practice 33

Additional reference and guidance material38

Greenwash39

How does greenwash affect procurement?39

How do I avoid being greenwashed?43

What are ecolabels? 43

Additional reference and guidance material44

Assessing supplier sustainability performance45

Why should my supplier’s sustainability performance be assessed?45

Getting started46

Putting it into practice46

Going further 47

Additional reference and guidance material56

Sustainable procurement resources57

Case study – Department of Defence: Sustainable procurement of ICT 60

Additional reference and guidance material62

Contact63

List of figures

Figure 1: Examples of key considerations in sustainable procurement decisions7

Figure 2: The basic considerations when undertaking whole-of-life costing 11

Figure 3: Australian Government financial management framework relating to procurement 14

Figure 4: Sustainable procurement at each stage of the procurement process20

Figure 5: Relationship of waste minimisation with the procurement hierarchy21

Figure 6: Example of product life-cycle impacts and risks (hot water system)23

Figure 7: Illustration of typical whole-of-life costing elements over time32

Figure 8: Costs associated with the purchase of two different hot water systems33

Figure 9: Assessment spreadsheet layout sample 34

Figure 10: Examples of ecolabels.43

List of tables

Table 1: Comprehensive list of items for consideration in a whole-of-life costing model35

Table 2: Example of a whole-of-life costing assessment (hot water system) 36

Table 3: How to recognise and avoid greenwash40

Table 4: Sample supplier questionnaire51

PART 1: KEY CONCEPTS

Introduction

Sustainable procurement decisions consider the environmental and social impacts (both positive and negative) from products and services alongside the cost. Considering the environmental and social impacts from procurement aligns with Australian Government obligations to spend public money efficiently, effectively, economically and ethically. As a large procurer (the Australian Government spent over $32billion in 2010–11[1] on contracted goods and services), the Australian Government can have a leading role as a model purchaser to encourage good practices by its suppliers by using its purchasing power to achieve environmental and social benefits and, at the same time, reduce its costs.

Part 1 of this document will build an understanding of the concept of sustainable procurement, the general principles underpinning it and options for including sustainability in procurement decisions. It describes the benefits sustainable procurement could have for government agencies, suppliers and other sectors of the community.

Part 1:

defines sustainable procurement
explains some of the key concepts used in sustainable procurement
explains the benefits of undertaking sustainable procurement
describes the policy context for applying sustainable procurement in Australian Government agencies
provides some options and issues to consider when including sustainability in procurement
provides links to further resources.

What is sustainable procurement?

Sustainable procurement as a broad concept first emerged following the Rio Earth Summit in 1992. During the 1990s, environmental procurement policies started appearing at the European and international levels and some grew into sustainable procurement policies. Many governments, both overseas and domestic, have now implemented policies promoting sustainable procurement principles.

Sustainable procurement aims to reduce the adverse environmental, social and economic impacts of purchased products and services throughout their life. Examples of environmental, social and economic impacts are:

inputs of natural resources, energy and water in the manufacture, use and disposal of goods
pollution produced from the manufacture, use and disposal of goods
costs of operation and maintenance over the life of the goods
labour conditions in the manufacture, use and disposal of goods or delivery of services
loss of flora and fauna resulting from the removal or alteration of natural resources.

Sustainable procurement looks beyond the up-front cost to make purchasing decisions based on the entire life cycle of the goods and services, taking into account associated costs, environmental and social risks and benefits, and broader social and environmental implications.

Figure 1: Examples of key considerations in sustainable procurement decisions

In 2005, the UK Government set up a Sustainable Procurement Task Force which developed a definition for sustainable procurement. This definition is now used by the Australasian Procurement and Construction Council (APCC), the UN and the UK
Government:

Principles for procuring sustainably

Value for money is the core principle underpinning Australian Government procurement. This means that all relevant financial and non-financial costs and benefits should be taken into account over the entire life of the procurement.Sustainability should be considered as part of the value for money assessment.

Other principles of sustainable procurement include:

adopting strategies to avoid unnecessary consumption and manage demand
minimising environmental impacts over the life of the goods and services by choosing products or services that have lower adverse impacts associated with any stage in their production, use or disposal
fostering innovation in sustainable products and services through the design and implementation of procurements
ensuring that fair and ethical sourcing practices are applied and that suppliers are complying with socially responsible practices, including legislative obligations to employees.

Key concepts in sustainable procurement

A number of concepts and approaches assist with incorporating sustainability considerations into procurement decisions.

Value for money: Achieving value for money is a core rule of Australian Government procurement. It should be noted that the price of a good or service is not the sole determining factor in assessing value for money. Comparing the relevant financial and non-financial costs and benefits of alternative solutions will inform the value for money assessment. The Commonwealth Procurement Rules (paragraphs4.1 to 4.5, pages 14 and 15) describe value for money further.

Sustainable development: This is commonly defined as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’.[2]

Wellbeing: This reflects the combination of economic prosperity, community liveability and environmental integrity.

Sustainability: This depends on maintaining or enhancing the wellbeing of society over time, and therefore requires that the total economic, social and natural capital is maintained or improved for future generations.

Environmental management: This refers to strategic arrangements to reduce the environmental impacts of an organisation’s operations. One example of this is an environmental management system, which brings together all the environment-related elements of an entity into an overarching management strategy through planning, implementing and reviewing efforts to reduce environmental impacts.[3]

Another aspect of environmental management is environmental reporting, which measures whether environmental activities have effectively managed the impacts. For example, the Environment Protection and Biodiversity Conservation Act 1999 requires entities to report in their annual reports on the actions they have taken to manage and
mitigate environmental impacts.

Environmental purchasing: The term sustainable procurement is frequently used interchangeably with ‘green purchasing’ and ‘environmentally preferable purchasing’, but there is a distinction. Green purchasing and environmentally preferable purchasing relate to the consideration of environmental impacts and costs in the procurement of goods and services, whereas sustainable procurement considers the social, environmental and economic implications of procurement.[4]

Greenwash: This is the practice of making false, misleading and/or deceptive claims about the environmental practices of a company or the environmental attributes or benefits of its products or services. Greenwash is often unintentional and can include claims that are vague, irrelevant or inaccurate or that only tell part of the story about the environmental impacts of a product.

To avoid being greenwashed, it helps to understand the environmental impacts of the product or service (life cycle thinking) and the relevant eco-labels, certifications or standards that apply. This information and knowledge can then inform the development of specifications.

Supply chain assessment: Some goods or services can have long supply chains – for example, parts of the process of manufacturing IT equipment can be done in developing countries. There may be risks that environmental protection or labour rights are not respected during the manufacturing or subcontracting process. Assessing the environmental and social credentials of a supplier can extend to ensuring that the supply chain also meets the same environmental and social requirements.

Life-cycle thinking: This refers to approaches that consider the whole life cycle of a good or service to help understand all the benefits and disadvantages of procurement decisions. One approach considers this in terms of the cost (total cost of ownership, or whole-of-life cost) and another in terms of other measures (life-cycle analysis).

Whole-of-life costing (also known as life-cycle costing or total cost of ownership) is the most relevant in a procurement context. This is the cost to the organisation of acquiring the product (including design and planning where applicable), installing or commissioning it, training others to use it, operating it, repairing it, maintaining it, and disposing of it at the end of its life. For some types of products, the lowest cost option up front may not be the cheapest over the life of the asset. This is typically the case for products that use power, water, fuel or other consumables, or have complexities associated with disposal (such as containing hazardous materials).

Figure 2: The basic considerations when undertaking whole-of-life costing

Life-cycle analysis is a more complicated method to measure the environmental impacts of a product over its life (‘cradle to grave’). It is a highly technical and specialist area, governed by the ISO 14040 set of standards, and covers:

extraction of raw materials
product manufacturing
packaging and distribution
product usage/consumption
end-of-life disposal.

Life-cycle analysis does not take account of social and economic considerations associated with a particular activity or product. In a procurement context, life-cycle analysis has fairly limited application, although the term is often used interchangeably with total cost of ownership and whole-of-life cost.

Life-cycle thinking (rather than life-cycle analysis) is a useful concept for procurement professionals to be aware of, which means having an understanding of where in the life cycle a product’s main impacts occur. This can inform development of specifications which address these impacts.

Social benefits: Being sustainable is also considering the social factors of a good or service. Suppliers can be socially responsible by adopting ethical practices and being compliant with legislative obligations and other actions that benefit society including inclusiveness, equality, diversity, regeneration and integration.

Social impacts that can be taken into consideration across sustainable procurement activities include:

supporting suppliers to government who are socially responsible and adopt ethical practices
considering human health impacts
supporting the use of local and emerging small businesses
supporting socially inclusive practices, such as employment and training focused on disadvantaged groups
assessing the impact of occupational health and safety concerns (both here and abroad)
ensuring compliance with relevant regulatory requirements.

Benefits of sustainable procurement

The benefits of adopting a sustainable procurement approach are numerous. The receiver of the benefits can be the purchaser, the market (or supplier) or the community. Some benefits can apply to all these groups.

Benefits to the purchaser can include:

securing best value for money and achieving a more efficient use of public resources
generating financial savings through greater energy efficiency; reduced waste disposal (including reduced packaging to waste); reduced water use; and reusing materials and products, thereby lowering the cost of a product over its life cycle
achieving positive publicity associated with the purchase and use of products, services and suppliers with good environmental and social responsibility records
providing government leadership to the community in demonstrating social and environmental responsibility through the purchase of sustainable products and services.

Benefits to the market can include:

increasing the availability of sustainable products and services at more cost-effective prices
expanding the market for sustainable products and services, with potential benefits for local businesses
expanding market opportunities gained from stronger product and service differentiation
reducing transport-related costs such as fuel, vehicle maintenance and road congestion
supporting and encouraging innovation through demonstrating preference for more sustainable products and services
encouraging industry to develop capacity to operate in a clean, green economy.

Benefits to the community can include:

reducing adverse environmental and social impacts arising from procurement decisions
reducing waste to landfill, saving water and reducing greenhouse gas emissions
reducing air and water pollution
reducing consumption of both natural and processed resources
promoting health, safety and equality in the community
influencing purchasing decisions to support issues such recognising equality and diversity; increasing employment and skills; and developing local communities and their physical infrastructure[5]
improving social inclusion and cohesion through creating employment and business opportunities for disadvantaged or marginalised groups.

Policy context for the Australian Government

National Waste Policy

The National Waste Policy: Less Waste, More Resources was endorsed by the Council of Australian Governments (COAG) in 2010. This collaborative policy establishes Australia’s waste management and resource recovery agenda across six key directions and 16 priority strategies to 2020.

Strategy 2 of the National Waste Policy commits all governments, including the Australian Government, to embody sustainable procurement in their operations:

All governments as significant procurers of goods, services and infrastructure, will embody and promote sustainable procurement principles and practices within their own operations and delivery of programs and services to facilitate certainty in the market.

Australian Government financial management framework

The Australian Government financial framework governs proposals to spend public money in agencies. Sustainable procurement must meet the framework requirements.

Two key pieces of legislation relate to procurement. The Financial Management and Accountability Act 1997 (FMA Act) and its supporting regulations govern FMA Act agencies, and the Commonwealth Authorities and Companies Act 1997 (CAC Act) applies to CAC Act bodies.

Figure 3: Australian Government financial management framework relating to procurement

Commonwealth Procurement Rules

The requirements of the FMA Act mandate the use of the Commonwealth Procurement Rules (CPRs) and require that procuring officials comply with the CPRs when they procure goods and services. The CPRs are also applicable to prescribed CAC Act bodies as directed under the Finance Minister’s (CAC Act Procurement) Directions 2012. More information about the CPRs can be found at

Procurement-connected policies

Procurement-connected policies are stated in the CPRs as policies of the Commonwealth for which procurement has been identified as a means of delivery. To assist agencies in complying with policies of the Commonwealth, the Department of Finance and Deregulation maintains a list of procurement-connected policies, which can be found at

Options for including sustainability in procurement decisions

Many organisations and governments have implemented sustainable procurement practices in their operations. The US and UK governments are two international examples of governments that have policies and guidance for considering sustainability in procurement decisions – as have many Australian state and territory governments.

Options for implementing sustainability in Australian Government procurement decisions could include:

instituting an overarching framework or policy
implementing an action plan
setting commitments for operations to abide by
providing practical resources.

Generally there are more examples and resources available in relation to the environmental aspects of sustainable procurement than the social aspects. However, the United Nations sustainable procurement guide covers social issues such as core labour standards, fair working conditions, increasing employment and developing local communities.[6] See Appendix A for further resources.

Agency policies

Sustainable procurement may not be able to minimise all the adverse social, environmental and economic impacts associated with purchasing goods and services. It may be desirable to identify the sustainability impacts that your agency regards as the most important to address through procurement activities. Procurement-connected policies (see page 15), agency sustainability policies, annual reports or other plans or policies may assist to identify key sustainability objectives.

Sustainability issues in purchasing decisions

When considering a purchase, the sustainability issues could include:

examining the need for the product or service, to avoid unnecessary consumption and manage demand
considering the alternatives to purchasing a replacement product, such as reusing, refurbishing or reconditioning the existing product or its components to extend its life
with all factors being equal in the purchase of a product, choosing the product with the least environmental and/or social impact
utilising extended warranties
considering the environmental management practices of the supplier/manufacturer – refer to benchmarking environmental management programs where practicable, such as ISO 14001
requiring suppliers to meet their employment obligations under relevant legislation and other related instruments
considering the emissions, pollutants, energy and water required at all stages of the life cycle
verifying the social responsibility and ethical behaviour of manufacturers and suppliers of the product
reducing the hazardous material content in purchases, including toxicity
considering the end-of-life options, including the reuse, repair, recycling and disposal options.

Additional reference and guidance material