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A focus on sustainable procurement enables buyers to incorporate economic, social, and environmental considerations into their procurements. While there has been much discussion of green procurement which is concerned with reducing the environmental impact of works, supplies and services throughout their life cycle, there has been less discussion on procuring in a way that is sustainable. Sustainable procurement ensures that contracting authorities incorporate social and environmental considerations into their procurements and also serves a more ambitious purpose. Imposing sustainability requirements for access to government contracts, which account for 10-12% of GDP in Ireland, should incentivise economic operators to develop sustainable solutions that can subsequently be deployed for private sector contracts, shifting markets onto a more sustainable course.
Sustainable award criteria
The Public Procurement Directives (Directive 2014/24, Directive 2014/25 and Directive 2014/23) expressly permit public authorities to implement environmental and social related award criteria, so long as these criteria are linked to the subject matter of the contract. Caselaw has clarified what it means to be “linked to the subject-matter”.
In Wienstrom (Case C-448/01), a contracting authority tendered for the supply of electricity to its office buildings. The tender documents fixed the weighting of the award criteria at 55% for price and at 45% for energy produced from renewable sources. Due to technical limitations, no supplier could guarantee that the electricity it supplied to a particular customer was actually produced from renewable energy sources. To overcome this hurdle, the contracting authority arranged that only tenderers who could supply at least 22.5 GW-h per annum (the annual power requirements of the offices) could submit a bid, and applied the renewable energy weighting only to the amount of energy a supplier could produce in excess of that amount. The Court of Justice of the European Union (CJEU) considered that, in principle, weighting the award criteria to favour renewable energy production would have been permissible. The criterion chosen in this instance, however, was not permissible: by only taking into account the proportion of energy produced from renewable sources in excess of actual requirements, the contracting authority had chosen a metric that was plainly not linked to the subject matter.
In the subsequent Max Havelaar case (Case C‑368/10) a Dutch local authority tendered for the supply and maintenance of drinks dispensing machines together with the supply of tea and coffee. The award process allocated points to products bearing certain Fair-Trade labels. The label that gave its name to the case was based on the product satisfying four criteria:
(a) the price must cover all the costs
(b) it must contain a supplementary premium compared to the market price
(c) production must be subject to pre-financing
(d) the importer must have long-term trading relationships with the producers
The tender process was subsequently challenged partly on the basis that these criteria were not related to the subject-matter of the contract. The CJEU ruled that to be linked to the “subject-matter” of the contract did not require that the award criterion be linked to the intrinsic characteristics or material substance of the good, service, or works being contracted for. It was therefore permissible for an award criterion to be based on social considerations that concern persons other than the contracting authority or the beneficiary of the contract, such as suppliers.
The Public Procurement Directive (in language replicated in the Utilities Directive) further provides that:
Award criteria shall be considered to be linked to the subject-matter of the public contract where they relate to the works, supplies or services to be provided under that contract in any respect and at any stage of their life cycle, including factors involved in:
(a) the specific process of production, provision or trading of those works, supplies or services; or
(b) a specific process for another stage of their life cycle,
even where such factors do not form part of their material substance.
This means that regard can be had to both upstream and downstream factors and might result in, for instance, one tender being preferred to another because the manufacturing process for the subject matter did not involve toxic chemicals, or because the purchased services are provided using energy-efficient machines.
Voluntary sustainable procurement
Although the procurement rules enable sustainable procurement, they have not gone so far as to mandate its usage. While contracting authorities may incorporate sustainability criteria into their evaluation processes, they are not required to do so. Public authorities may exclude economic operators that have breached applicable obligations in the fields of environmental or social law, but they are only obliged to do so when this breach enables an abnormally low tender.
Recent years have seen the development of a range of highly specific and objective Green Public Procurement criteria and requirements (the GPP criteria) that are ready to be inserted directly into tenders and contracts by contracting authorities on a voluntary basis. They are accompanied by notes on the relevant legislation, standards and labels in each sector, and information on how the criteria can be evaluated and verified. The Irish Environmental Protection Agency (the EPA) has developed such criteria for ten sectors including transport, ICT, food and catering, and office buildings. These standards are split into core criteria, which are suitable for use by any public body and address the key environmental impacts of each product or service, including basic legal compliance, and comprehensive criteria, which aim for an enhanced level of environmental performance.
Mandating sustainable procurement
Notwithstanding the essentially voluntary nature of sustainable procurement under the public procurement rules, contracting authorities are increasingly being corralled into having regard to such considerations. Under Ireland’s Green Public Procurement Strategy and Action Plan 2024-2027 (the Action Plan), public bodies publishing tender documents for contracts within the scope of national / EU procurement rules must either include GPP criteria (where available) or provide an explanation for their failure to do so (see our note on the Action Plan here). The Action Plan also contains a commitment for the Department of the Environment, Climate and Communication to consider the legislative basis to mandate the reporting of green public procurement by all public bodies (departments of Government are already obliged to provide annual reports on their green public procurement, as per Circular 20/2019).
Certain minimum mandatory sustainability criteria have been set down by a creeping body of sector-specific legislation. The amended Directive 2009/33/EC, for instance, requires that a minimum proportion of the total stock of vehicles tendered for under public contracts be “clean vehicles”. Another element of the aforementioned Action Plan requires that public bodies specify that lower carbon concrete and cement be used for directly procured or supported construction projects. Similar requirements exist in respect of the Energy Efficiency Directive and the Energy Performance of Buildings Directive.
The Net-Zero Industry Act and the future of sustainable procurement
The Net-Zero Industry Act (NZIA) creates minimum environmental sustainability requirements (to be set out in a forthcoming Implementing Regulation) which will be applied to the procurement of specified net-zero technologies. Contracting authorities are obliged to include one of three additional elements in their tender contest: a special condition relating to social or employment-related considerations; a requirement to demonstrate compliance with applicable cybersecurity requirements; or a specific contractual obligation to pay an appropriate charge if the net-zero technology is not delivered on time.
The NZIA differs from other pieces of legislation in requiring that a tender’s “resilience contribution” be taken into account (NZIA, Article 25(7)). Where the European Commission has identified a dependency on a third country, no more than 50% of the value of the specific net-zero technology or of its main specific components can be sourced from that third country. The European Commission will make this designation if more than 50% of the supply of a specific net-zero technology or its main components originate in a third country, or if the third country produces at least 40% of the supply of that technology within the Union and its share has increased by at least 10% on average for two consecutive years. This subparagraph will not be applied in respect of signatories to the WTO Agreement on Government Procurement.
Although a product of the first Von Der Leyen Presidency, the NZIA is indicative of a gathering movement away from a narrow focus on the sustainability imperative and towards incorporating industrial policy and geopolitics in such considerations. Calls for further reform have already begun: chapter 5 of the Future of European Competitiveness (the Draghi Report) calls for local production quotas in sectors where, despite the NZIA, the EU cannot regain autonomy, combined with criteria orientating local production to the most innovative and sustainable solutions. It is telling in this regard that the full title of the new Competition Commissioner designate, Teresa Ribera, is “Executive Vice-President of a Clean, Just and Competitive Transition”, and that her responsibilities include ensuring that the EU both decarbonises and industrialises its economy simultaneously. Technological leadership in green industries is now regarded as crucial to the EU's future prosperity and competitiveness, and, given the political difficulties of centralised borrowing and investment, sustainable procurement has emerged as one of the industrial policy tools of choice.
What next?
Sustainable procurement is clearly now a key focus in public procurement and with it comes a new set of demands for public procurers. Economic operators that have not yet adapted their practices to incorporate ESG credentials should be aware of green and sustainability criteria relevant to their sector and prepare to compete on award criteria beyond traditional measures of quality and price. If they fail to respond, economic operators risk being frozen out of the €18.5bn Irish public procurement market. Public bodies, meanwhile, must prepare for enhanced scrutiny of their procurement practices and should work to educate staff on the practicalities of conducting sustainable procurement. Good intentions to achieve sustainability while compromising General Principles of EU law such as transparency and equal treatment will not be a shield against an aggrieved losing bidder. The caselaw is informative in this regard and it is notable that in the Max Havelaar and Wienstrom cases both contracting authorities were found to have breached procurement rules despite their good intentions. Economic operators should also consider their supply chains for geopolitically sensitive products and work on diversifying supply chains away from any one dominant producer. Both economic operators and public authorities will need to keep a keen watch for the anticipated NZIA Implementing Regulation and future guidelines and legislation.
For further information, please contact any member of ALG’s EU, Competition & Procurement team.
Date published: 22 October 2024
