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Using procurement to drive climate change action

Infrastructure clients are now able to take a contractual approach to driving carbon reduction and other climate-related measures in their supply chains. Should they opt to do so, and how can it be done effectively? Richard Patterson and Priyesh Depala explore the issues.

Procurement is a key tool that the construction sector can use to effectively decarbonise and mitigate climate change impacts. By making it clear that whole-life carbon reduction and resilience are an essential part of their requirements, clients can set the tone for meaningful change in the supply chain and spur the innovation and continuous improvement that will be needed in the pursuit of a net-zero future.

It’s now possible to write climate change requirements into contracts, whether these contracts are client designed, design-build or design-build-operate. NEC (with the support of our NEC specialist, Richard Patterson) recently published a draft of a secondary option X29, ‘climate change’.

This new option prompts the inclusion of ‘climate change requirements’ and allows targets on carbon emissions, and other sustainability-related metrics, to be written into a ‘performance table’ used for incentivisation in the NEC4 Engineering and Construction Contract (ECC). The incentives can be positive, negative, or a mixture of both. The targets can be set by the client and/or offered by the bidder.

One way that X29 can be used is to facilitate procurement based on whole-life asset performance rather than simply performance on a project. The aim is to encourage energy-efficient, forward-thinking solutions for the built environment that will work for the long term. X29 is drafted specifically for NEC contracts but it is worth noting that similar clauses could be drafted to write net-zero obligations into other contracts, including those published by FIDIC.

So should clients go down the route of formal incentivisation on climate change, and if so, to what extent? If environmental outcomes are a priority, and they are concerned about the accountability of contractors and suppliers in meeting these outcomes, then it should be seriously considered.

However, there are a couple of caveats that should be borne in mind before taking this step. First, you need to have confidence that you have robust metrics in place and that all parties are confident in their ability to measure them. This requires parties to work collaboratively to agree on a framework for how emissions will be measured (e.g. data sources to be used, how emissions reductions will be monitored and verified). Establishing an appropriate baseline for any improvement targets is just as important as the choice of the metrics themselves, and can be just as challenging. Tools such as the Moata Carbon Portal can help here.

Second, if you have not already done so, it may be worth considering the use of non-contractual performance metrics (KPIs) as an intermediate step before introducing enforceable contractual terms. Remember, the intention is to work with contractors and suppliers to gain the maximum possible climate change performance, not to scare off potential bidders with the fear that they may be caught out if they fall short. Early contractor involvement can help establish what is feasible before reaching the contractual stage.

We have worked with some infrastructure client organisations that are leading the way in procurement for sustainability. Watercare, New Zealand’s largest water and wastewater company, recently used NEC4 to incentivise whole-life carbon in a major design and build contract. In the UK, Anglian Water has used an enterprise approach to forge long-term partnerships with contractors and suppliers around outcomes that include meaningful climate change metrics.

The devil is in the detail. Poorly thought-through procurement can be counter-productive, so pay attention to the latest industry guidance and standards (in particular, PAS2080 for managing carbon in buildings and infrastructure). And take expert advice. If you are considering changes to your procurement approach or need assistance with specific contractual terms, we can help.

This article is part of a series we are publishing to celebrate the 10th annual Carbon Crunch, our event for infrastructure stakeholders focusing on carbon management and resilience. It takes place on 18th October 2022 at the Institute for Civil Engineers in London. Book now.

Richard Patterson, NEC and procurement specialist

Priyesh Depala, investment planning advisor

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