Contractors Advised to Look at Carbon Footprint as Agencies Strive for Sustainability

By Andrew Childers

Businesses bidding on federal contracts should begin evaluating and making plans to reduce their greenhouse gas footprint as federal agencies move to implement an executive order on sustainability, experts advised.

Executive Order 13,514, issued in 2009, requires agencies to meet a series of targets for cutting energy and water use and reducing waste and pollution. It also requires 95 percent of new contracts to qualify as energy-efficient, water-efficient, or otherwise be environmentally beneficial.

That will mean businesses bidding on government contracts should be able to demonstrate how they have accounted for their energy consumption and greenhouse gas emissions, potentially all the way down the supply chain, contracting experts said.

“In terms of doing a corporate footprint, companies should have started already,” Craig Ebert, a senior vice president at ICF International, a consulting firm that advises businesses on issues such as climate change, told BNA. “It's not required right now for government contracting, but it very well could be that contractors will have to take certain actions as part of the procurement process. Among them could be a carbon inventory.”

Importantly for federal contractors, the order mandates that agencies leverage their acquisitions “to foster markets for sustainable technologies and environmentally preferable materials, products, and services.”

The General Services Administration, Department of Defense, and National Aeronautics and Space Administration issued an interim final rule May 31 that incorporates into the Federal Acquisition Regulation the requirements of the executive order on sustainability as well as a 2007 executive order on environmental, energy, and transportation management (Exec. Order No. 13,423). The interim rule was issued as part of Federal Acquisition Circular 2005-52 (76 Fed. Reg. 31,395).

Businesses Should Measure Footprint

“The first thing companies need to do is become aware of the impact their business practices have in areas of sustainability,” Richard G. Kidd IV, deputy assistant secretary of the Army for energy and sustainability, told BNA. Kidd served during the Bush administration as the head of the Department of Energy's Federal Energy Management Program, which implements energy efficiency programs for the federal government.

In its annual sustainability report for 2010, the Army will be measuring its performance against the criteria of the executive order, Kidd said. The Army already applies the standards of the Global Reporting Initiative, a set of uniform, voluntary guidelines for disclosing and reporting greenhouse gas emissions, when evaluating its carbon footprint, he said.

E.O. 13,514 requires federal agencies to develop sustainability plans detailing programs to identify and reduce the federal government's greenhouse gas emissions from three separate scopes: direct emissions (Scope 1), emissions from energy consumption (Scope 2), and emissions from the supply chain and contracted services (Scope 3).

In those plans, many federal agencies, including the Environmental Protection Agency, GSA, and the Department of the Interior, have focused on reducing employee travel or choosing less carbon-intensive alternatives as ways to reduce their Scope 3 emissions, which includes accounting for the carbon footprint of an agency's supply chain.

The executive order requires the government to consider the carbon footprint of its own supply chain, so it would be natural to expect federal agencies will place similar demands on contractors, Ebert said.

“For a lot of contractors it's largely going to be the office space you occupy,” he said. “Your focus needs to be on your own operations, but may also expand to include your own supply chain.”

Sustainability Plans Will Become Standard

Fedmarket consultant Eileen Kent said that sustainability plans—whatever form they ultimately take—eventually will become a standard requirement in many federal procurements, which will profoundly affect the goods and services contractors provide at all levels.

“The new environmental initiatives will influence vendors to offer more green products to the government,” she said. “Some contracts will require a sustainability plan as part of a proposal's management plan. I imagine even the General Services Administration will implement green elements in RFPs, but only in a few this year just to see what sustainability plans in the corporate world look like. Down the road, they will probably judge contractors on them regularly.”

She said the heightened standards eventually will reach even small subcontractors.

“I believe they will push companies like big-box retailers, which will have to ask their vendors for sustainability plans and try to keep track of them,” Kent said. “There will be a trickle-down effect from government to subcontractors. Prime vendors that show accountability will probably be rewarded with more opportunities. The incentive is to be a leader in the industry, and you might win some future contracts as a result of your investment in time and effort in developing a sustainability plan.”

Some federal agencies, such as the Army, said they intend to closely consider environmental factors when making purchasing decisions.

“I think we can anticipate a time when all other attributes being equal, the product with the lowest embedded carbon would be preferable,” Kidd said.

Common Measurements Needed

Evaluating a company's environmental footprint is “a smart business practice” and something businesses should already be doing, Alan Chvotkin, executive vice president and counsel at the Professional Services Council, a trade association representing contractors, told BNA.

However, he said vendors and the government still need to decide on a single reporting methodology that is consistently applied across federal agencies. While there are generally agreed-upon methods for measuring greenhouse gas emissions from vehicles and aircraft, “beyond that there's not a lot of common definitions for capturing and recording greenhouse gases,” Chvotkin said.

“We're well down the road a couple of years at least to have an agreed-upon methodology for reporting on a comprehensive basis,” he said.

Analysts also have said that, in general, agencies have been inconsistent as they have begun to implement E.O. 15,314. (See related story in this issue.)

In an April 2010 guidance document, GSA said it would be feasible to track greenhouse gas emissions up the federal supply chain by coordinating with suppliers. However, GSA said measuring greenhouse gases and incorporating that into the procurement process is an “emerging field and all stakeholders will need time and resources to adjust to a steep learning curve.”

The guidance recommends agencies adopt a phased approach to addressing greenhouse gases from their supply chains so that they can “incorporate leading practices as they develop.”

For now, contractors said they are unsure how far down the supply chains federal agencies will require them to go when reporting their emissions. However, Chvotkin and Ebert both recommended companies account for at least their own direct emissions as well as those from their energy consumption. Some contractors speculate the government may also require companies to account for their own suppliers in the future.

“I think it's hard at this point to predict how far down the supply chain we're going to expect,” Kidd said. “The intent is the totality of the supply chain. I know a number of private sector firms, big firms are able to do this right now.”

Private Sector Driving Sustainability

Experts on sustainability said larger companies, particularly retailer Wal-Mart, have already been driving similar requirements in the private sector (67 DEN A-5, 4/9/10).

“For them sustainability was all about their mission, which in this case was driving inefficiencies out of the supply chain,” Kidd said.

Additionally, many companies have already made their carbon footprint available through programs such as the voluntary Carbon Disclosure Project, Ebert said. More than 3,000 organizations in 60 countries have contributed to the project, disclosing progress toward their greenhouse gas reduction targets.

The executive order “for a lot of companies is not necessarily happening in a vacuum,” Ebert said.

“Corporate clients are often already demanding action on the part of their suppliers,” he said.

Winners and Losers

Obviously some contractors will adapt to more stringent environmental requirements more easily than others, because compliance will require a significant amount of money and human capital.

“If you're a larger corporation with good resources and good research and development, you're going to come out a winner,” Newport Consulting Group Principal Dave Meyer said. “Small companies that lack those things are going to get shut out. There are a lot of players right now, but over time there will be a shakeout and just a few key players will be left” in some industries.

However, he noted that small companies theoretically can partner with larger firms to survive.

Steven Neeley, an associate with Husch Blackwell, said although many industries will acutely feel the effects of the government's green contracting initiatives, construction will be impacted more than most.

For example, he noted the interim Federal Acquisition Regulation rule requires compliance with principles governing high-performance sustainable buildings and sets other targets working toward minimizing the environmental footprint of construction. That will be easier or harder depending on how much money a particular contractor has invested in those efforts.

“These environmental requirements have been out there already as things agencies should aspire to,” he said. “The executive order shifts those aspirations to requirements. The writing is on the wall that sustainability is a big part of the future for federal construction.”

That means, Neeley said, builders increasingly will have to incorporate products that minimize energy use and overall environmental impact, during both the construction phase and the building's lifetime.

Procurement, Environment Often at Odds

While the executive order requires 95 percent of procurements to be sustainable, Chvotkin said there could be a “clash between the environmental goals” and other factors that go into contracting decisions.

Kidd, too, said that while environmental considerations could be factors in evaluating purchases, ultimately the Army would select the item that best meets its mission objectives. However, he predicts carbon content will become a key qualifier when the government is making purchases or hiring vendors for contracts.

“Sooner or later carbon content is going to become a factor in procurement decisions,” he said. “There's lots of politics around this but the science is very clear.”

Contributing to this story was Jeff Kinney