The Cabinet Office has published guidance on the Procurement Policy Note (PPN) published by the Cabinet Office in June 2021 (PPN 06/21). PPN 06/21 established the requirement for suppliers bidding for major government contracts (over £5million) to commit to achieving Net Zero by 2050 and publish a Carbon Reduction Plan.

The guidance provides standard terms and conditions to support contract-specific decarbonisation objectives to be set and delivered and provides a framework to monitor and assess the suppliers’ decarbonisation performance.

 

The Cascade Effect

Although PPN 06/21 is intended to impact those businesses bidding for major government contracts, the fact that the requirements extend to framework agreements and dynamic purchasing systems means that many SMEs will have to meet the requirements.

Furthermore, many secondary suppliers will be required to meet the reporting obligations in their sub-contracts and supply contracts as the guidance suggests, that in certain circumstances, that the cascading of obligations will be necessary. It is also likely that the Net Zero commitment will be reflected in the mid-tier and short-form contracts as well as private sector contracts in the near future. Therefore, SME’s need to take steps to be able to comply with the requirement to produce information to support production of a Carbon Reduction Plan.

The model terms and conditions are contained in the Carbon Reduction Schedule published by the Cabinet Office. The model terms support contract-specific decarbonisation objectives, contract-specific GHG Emissions reporting, setting Supplier GHG Emissions reduction targets, or require the supplier to produce a GHG Emissions reduction plan to monitor and reduce GHG Emissions throughout the life of the contract.

Whilst the model terms and conditions are optional, we expect to see the inclusion of the Carbon Reduction Schedule more frequently, including provisions to “cascade down” the requirements through the supply chain.  Therefore, the provisions are likely to impact even small and medium scale suppliers.

 

What should SME’s do?

Suppliers and manufacturers need to take steps to record, report and reduce carbon emissions in order that they may compete for both public sector and private sector contracts.

The Cabinet Office Guidance reflects a wider regulatory trend where more business sectors are required to collate accurate information in respect of the carbon footprint of their products and services and to set targets to reduce that footprint. It is unsurprising that those obligations will be pushed down the supply chain. The requirement is being driven by a range of measures, including government procurement policy, upcoming tax regimes, such as the Carbon Border Adjustment Mechanism and international businesses’ ESG commitments, as well as anti-greenwashing rules.

Initially SMEs should take steps to identify record current Scope 1 and 2 emissions of the Greenhouse Gas Protocol and certain Scope 3 emissions.  This may require some complex data collection steps to capture emissions such as upstream / downstream emissions, transportation and distribution and employee commuting.  Once a baseline is established, companies can then identify “hotspots” and areas for reduction.  SMEs also need to consider their own purchasing contracts to ensure that they can meet the reporting requirements of their customers and clients.

 

If you have any questions on what individual companies must do to comply and how they can present their green credentials favourably please contact Maria O’Loan in our Environment and Planning Team or Paul Eastwood for any procurement related matters.

 

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.