How Public Procurement Can Help Build the Circular Economy
The circular economy is currently regarded as a systemic solution to key sustainability issues we are facing as a society. It is embraced by companies, governments and citizens as it has the potential to protect the environment while creating jobs, business growth opportunities and cost savings. Everybody has a role and responsibility to realise the transition towards a circular economy, but public authorities in particular, can act as a key enabler of change. In this article, we explain how public authorities, through the purchasing of products and services (public procurement), can accelerate this transition and which structural challenges should be considered to make circular procurement standard practice.
The End of the Linear Economy
The linear economy has been effective in generating wealth up to the 20th century. However, the underlying rationale: produce-use-dispose, has generated exorbitant negative and harmful effects such as rising social inequality, the depletion of natural resources, environmental pollution, and increasing consequences of climate change. The global use of raw materials, for example, has increased from 26.7 billion tons in 1970 to 92.1 billion tonnes in 2017 and global greenhouse gas emissions reached 51 billion tons of CO2 per year in 2017. While cities only occupy 3% of the global land surface, they consume 75% of global resources and produce between 60-80% of the global greenhouse gas emissions and 50% of global waste.
The Transition to a Circular Economy
The circular economy proposes a clean break from the linear consumption model; decoupling economic activity from the consumption of limited resources. In the circular economy, products are (re)used as long as possible, the maximum value is extracted in use, and at the end of its life cycle the material value of the product is recovered and regenerated instead of being treated as waste.
Our global economy is currently only 9% circular. At the same time, there is an upward trend expected in raw material extraction and greenhouse gas emissions, partly due to the expectation that cities by 2050 will accommodate 70% of the worldwide population. This indicates that incremental change is not sufficient, but public procurement can play a pivotal role in facilitating the transition.
The Pivotal Role of Public Procurement
In the EU, public authorities spend 16% of GDP, approximately €3 trillion, annually through procurement of goods, services, and infrastructure such as: furniture, ICT, buildings, and roads. With this purchasing power, public authorities are powerful market players that can steer their spending to support the development of innovative business models as opposed to harmful and inefficient linear models.
An effective way to do this is putting the performance of a product or service at the core of procurement processes. This is called performance-based procurement. By specifying performance criteria in line with circular economy principles (e.g. design for reuse, avoiding the use of raw materials through the inclusion of recycled content), businesses will be required to provide innovative solutions that are aligned with these principles. In this way, procurement can contribute to closing material loops in supply chains, and minimizing waste creation and environmental impacts along the whole life-cycle of products and services.
Circular Procurement in Action
In 2015 the Scottish Procurement Team re-let a suite of frameworks for the supply of ICT client devices, used by the Scottish Government and other Scottish public sector organisations. These frameworks are a great example of performance-based procurement along circular economy principles. Scottish Procurement prescribed contractors to extend the useful life of workstations and computers. As a result, contractors offered products with modular design, allowing the reuse of these products or their components. Contractors were also requested to minimize waste generation, resulting in packaging that contained minimum recycled content or that was sustainably sourced.
In Scotland, this process allowed public authorities to develop a greater understanding of which solutions were already available, and ensured that potential contractors were aware of the requirements. Consequently, businesses were well informed of the commercial viability of changing their linear business models to ones that close product and material loops.
The recent 360-degree review (framework developers, suppliers and users) of the National Client Device Frameworks demonstrated that ICT was, in many cases, still procured in a linear way and the take-back, repair and refurbishment services of the suppliers were underused by public authorities. The reconditioning and redeployment of ICT for reuse between and within the public sector remained isolated to few examples, with cited barriers including limitations of the hardware processing speed of older models & data cleansing requirements.
Another consideration for public agencies going through the procurement process, is the service and subscription based models of the new economy. Agencies can ask themselves: do we actually need to own this product, or can it be provided as a service? A service-oriented system (pay per use, take back) is more in line with circularity principles. In the ICT framework, Scottish public authorities required contractors to include take back schemes so that devices or their parts could be re-used and not end up as waste.
Recurring Challenges to Embedding Circular Procurement in Practice
Three major barriers are commonly encountered in the transition from traditional to circular procurement.
Designing and using performance-based criteria require procurement officers to develop new skill sets. In order to design these new circular processes, procurers will need to develop contracts differently, and learn new industries and performance specifications.
Institutional Risk Averseness
Procurers tend to be risk-averse for fear of lawsuits, indicating that existing legal frameworks and regulations do not sufficiently facilitate procurers to engage in a transparent, open manner with suppliers. In many cases, this perception of risk is not justified – principles such as fair-competition, transparency, and value-for-money are central in procurement processes and allow circular procurement to take place. The clearest example is the EU Public Procurement Directive (2014).
Lack of Business Case
A commonly used argument for maintaining traditional procurement is that the costs of circular products and services are higher are than continuing business as usual. However, existing procurement pricing models do not take into account the full life-cycle of a product, and don’t account for externalities such as environmental impact and subsequent clean up.
The Need for Examples and Learning by Doing
The next challenge lies in creating evidence that circular procurement is feasible and provides bottom-line financial value. For this purpose, the European ProCirc project has been created. In this project, public and private stakeholders will experiment, validate circular procurement approaches in minimum 20 circular procurement processes within product categories such as ICT, furniture, infrastructure, and the built environment. In addition, ProCirc installs Communities of Practice where businesses and public authorities will actively communicate and collaborate through a supported forum. The project will also set up a Procurer-to-Procurer Learning and Action Programme focused on increasing skillset through learning-by-doing.
Call to Action
We are always interested to hear your experiences with, and insights about circular procurement. If you would like to know more about what circular procurement and are potentially interested in participating in ProCirc’s Communities of Practice – feel free to reach out to Jesse Renema and/or Claire Guerin.
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