Procurement Policy Note PPN 01/24 – Carbon Reduction Contract Schedule

The Cabinet Office has published Procurement Policy Note PPN 01/24 “Carbon Reduction Contract Schedule” (18 March 2024). 

This PPN introduces an optional standard Carbon Reduction Contract Schedule that can be included in Government contracts, where it is considered relevant to the subject matter and proportionate to the delivery of the contract. The PPN applies to procurement by “In-Scope Organisations” (Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies); however, all public sector contracting authorities may wish to apply the approach set out.

The provisions are expected to be incorporated into future iterations of the suite of the Model Contracts, which were most recently updated on 1 August 2023.   However, it is suggested that in-scope organisations may also choose to use these terms in relevant procurements with immediate effect, or apply them to existing contracts, through a contract variation, where appropriate.

Purpose

This PPN supports PPN 06/21 which applies to major government contracts, framework agreements and contracts awarded under DPS where they have an anticipated value of £5 million plus per year.  That PPN required bidding suppliers to detail their commitment to achieving Net Zero through the publication of a Carbon Reduction Plan. 

The intention is that the Carbon Reduction Contract Schedule will assist the Government in working towards its Net Zero Target (which aims for a 100% reduction in the net UK territorial carbon account by 2050) by reducing greenhouse gas (GHG) emissions through public procurement. 

The Schedule sets out standard terms in relation to Carbon Reduction that can be used alongside broader sustainability obligations.  The intention is for the terms to support contract specific decarbonisation objectives and GHG emissions reporting, as well as providing a framework to monitor and assess the Supplier’s decarbonisation performance.  

When should it be used?

Whilst environmental and GHG emissions considerations feature in the aspects of delivery of most public contracts, as highlighted below, some categories of spend, such as technology, may provide greater opportunities to support Net Zero commitments.  Use of the schedule is optional and it should only be included where it is relevant to the subject matter of the contract and where it is proportionate to do so, rather than as a default.  

Before including the Carbon Reduction Schedule in a contract, organisations should assess:

• their own understanding of carbon reduction initiatives and how to apply and monitor these
• supplier’s understanding of initiatives and ability to introduce effective measures
• value and estimated carbon GHG emissions linked to the contract, and 
• criticality of the contract. 

Cabinet Office have also published further guidance on applying the schedule, together with the guidance included in the schedule itself. 

The guidance includes a number of questions to aid decision making and suggests that there are four key factors in determining the relevance and proportionality of the T&Cs to the contract:

• Category of spend – some categories will represent a greater opportunity for reducing GHG emissions, for example construction, industrial goods and services and ICT.
• Supply chain size, complexity and readiness – the maturity of the category and supply chain need to be considered in order to assess how burdensome cascading obligations down the supply chain may be.
• Contract value – whether it is proportionate to apply these terms to lower-value contracts, and whether smaller Suppliers such as SMEs and VCSEs are able to provide contract-specific emissions data, and
• Governance processes – how the terms sit alongside existing departmental or internal strategic initiatives involving Suppliers. 

What does the Schedule say?

The Schedule itself is split into sections which address the following usages: 

• Net Zero Obligation – ensuring supplier commitment to support Government or Authority Net Zero targets.
• Net Zero Commitment – requiring the supplier to have and maintain a Carbon Reduction Plan and to set its own Supplier Net Zero Target (if it does not already have one).
• Net Zero Contractual Commitments – there are three versions of this section depending on whether the procurements were in scope of PPN 06/21 or not and whether a Carbon Reduction Plan was created in line with the point above.  This generally establishes contractual commitments, such as GHG emissions reduction targets or contract level carbon foot printing.
• Reporting – setting out specific reporting requirements under the contract.  There are also option paragraph to provide a mechanism for reporting progress against the contract carbon footprint.
• Gain-share – an optional provision to be used as a means of incentivising GHG emissions reductions over and above any established contractual requirements.
• Net Zero Modification – a commitment to minimising the Contract Carbon Footprint and a mechanism to request a modification to support decarbonisation initiatives during the term of the contract.
• Remediation Plan – setting requirements to provide improvements plans where targets are unlikely to be met.
• Fuel emissions – obligations to support the reduction in fuel use where applicable.
• Optional Additional Net Zero paragraphs:

  • Supply Chain Cascade to support the proportionate cascade of relevant requirements to key supply chain partners).

  • Optional provisions in relation to the provision and disposal of goods (which should be kept under review to ensure no duplication or conflict with other provisions in the overarching contract).

  • Sector Specific paragraphs focusing on Technology, IT hardware asset management, Cloud Services, Construction Works and Facilities Management.

The supporting guidance is section specific and can be read alongside the list of provisions above.  There are various drafting notes inserted throughout the Schedule to assist with populating each section and determining whether the section is relevant to the contract. 

If you would like to know more about structuring your contracts to incorporate the Carbon Reduction principles, or how the schedule may need to be modified or adapted to fit with the way your organisation operates, please get in touch with Liz Fletcher.