17 February 2011 | Eleanor Aspey and Glenn Fletcher

Public authorities will soon be legally required to build sustainability into contracts. Eleanor Aspey and Glenn Fletcher identify ways of doing this.

There has been increasing recognition of the need to build into all public sector activities appropriate social, environmental and economic policies aimed at sustainable consumption and production, resource protection and environmental enhancement and the building of sustainable communities.

In 2009 the UK government made a commitment to the delivery of three priority policy areas through procurement – apprenticeships, skills and youth employment; small businesses and low-carbon resource efficiency.

The continuing importance given to sustainability issues in procurement, even in the current economic climate, can be seen by the content of two bills currently going through Parliament. The Public Services (Social Enterprise and Social Value) Bill and the Apprenticeships and Skills (Public Procurement Contracts) Bill, which would require public authorities to build sustainability issues into certain contracts let by public authorities to provide for apprenticeships and skills training.

However, purchasing authorities that are considering incorporating these issues in their procurement need to be careful to ensure that such policies comply with EU rules.

The rules are intended to avoid discrimination favouring national suppliers and to open up a common EU market for public procurement, and are consequently very economically focused. There is some scope to consider sustainability issues, provided that the EU’s overall aim of opening up the European procurement market is preserved.

There are, however, few clear rules on how this should be done. As a result, authorities have to balance the risk that a particular approach may be subsequently declared unlawful with the benefits of the policy.

The degree of risk differs at the four key stages of a public procurement – scope/specification; contract conditions; pre-qualification and contract award. We look at each in turn.

Scope/Specification

The stage at which an authority decides what it wants is the lowest-risk way in which to incorporate social and environmental issues. Authorities can evaluate whether there are more sustainable methods of achieving their needs, for example, by awarding a contract for improved telephone and video-conferencing facilities rather than a business travel contract.

Once the scope has been decided the authority could include in the technical specifications social and environmental concerns. Also, an authority could set specifications by reference to “performance or functional requirements”, which can certainly include environmental and possibly also social requirements. Social issues are considered harder to link to performance requirements than environmental issues, because they are less likely to have a real impact on the ultimate performance of a product. There is also a higher risk of discrimination than with environmental policies, given that in practice most social policies focus on improving the situation of certain sections of certain groups in the UK or the local area.

Contract conditions

The terms and conditions of the contract could include requirements such as to provide workforce training to certain standards. Also, in discharge of an Equality Act duty, a recruitment contract could include a condition stating that any jobs advertised should be offered on a part-time or flexible working basis, encouraging women to apply.

Such conditions must not favour UK suppliers or suppliers from a particular part of the UK (whether directly or indirectly). This may limit the utility of social policies such as those aimed at combating unemployment since such schemes must be designed in such a way as to also benefit the workers of any non-UK firms which win the contract.

It should also be noted that, if a supplier breaches such a condition, remedies under English law are limited since there is no real damage for the law to compensate. There is therefore little practical way to guarantee performance of contract conditions relating to sustainability.

Pre-qualification

An authority is allowed to exclude a supplier from a tender list for various reasons which include “being convicted of a criminal offence relating to conduct of his business or profession” and committing “an act of grave misconduct in the course of his business or profession”. The offences which may be considered include breaches of social and environmental legislation.

The precise scope of the discretion available to authorities, however, is uncertain. The definition of “grave misconduct” includes breaches of national civil legislation but may also include breach of commitments outside national law. For example, breaches of International Labour Organization conventions or professional agreements relating to social or environmental standards which the firm has signed up to, such as one of the principles of the UN Global Compact.

The permitted criteria for exclusion may also offer an opportunity to consider sustainability issues. Poor health and safety or labour standards may result in a firm being less able to complete a contract and therefore are relevant considerations at this stage. The ability of firms to comply with environmental requirements in works and services contracts may also be checked with reference to the firm’s compliance with environmental management schemes, in so far as such checks are necessary for the performance of the contract.

Although it is not clear whether the criteria a purchasing authority uses to exclude a supplier must be directly relevant to the contract, this seems likely given the strong emphasis on such a link in other areas of the Regulations. Also, the information asked for must be proportionate: authorities must not ask for more information than is needed to ensure that firms are capable of completing the contract. Purchasing authorities should be careful about using a standard pre-qualification questionnaire for all contracts since it is unlikely that all sustainability criteria will be relevant to all contracts awarded using it.

Contract award

Contracts can be awarded on the basis of which tender is the most economically advantageous and the criteria which may be considered include “environmental characteristics” and do not exclude social issues. Sustainability award criteria allow authorities to choose the firm best able to perform its social or environmental requirements, enabling authorities to balance the policy against other issues including cost.

However, all award criteria must be “linked to the subject matter of the contract”. Thus, a criterion evaluating bidders’ ability to supply the energy required under the contract would be allowable, but a criterion which evaluated the firm’s general ability to produce green energy would not.

Authorities must also ensure that any criterion they include is capable of assessment and verification. They should ensure that they have a clear and transparent method of assessment prepared for all sustainability criteria (which should be communicated to all bidders), even if this is not quantitative.

Interest in the use of social and environmental issues in procurement remains strong despite the economic conditions. Purchasing entities need to be aware of the limitations placed on such policies by EU legislation, but there remains considerable scope for positive action.

☛ Eleanor Aspey is a member of the Public Procurement Research Group, University of Nottingham, and Glenn Fletcher is director of EU procurement at Achilles Group