Roadmap: Circular Public Procurement

The “Green Deal Circulair Inkopen” defines circular public procurement as “the effort of the procurement instrument to stimulate the production and (re)use of circular products, with the hope to drive the circular economy”.

The procurement department plays a crucial role in terms of putting into practice and stimulating circular economy. As a buyer you can guarantee that the products and services you purchase are high quality reusable ones by making agreements with your supplier.

• Objectives

The objective of Circular Public Procurement is to greening public procurement in accordance with the principles of circular economy through the role of public authorities by promoting the purchase of goods, works and services that:

• have a reduced environmental impact;
• Contribute to create closed material and energy loops within supply chains;
• Minimise or avoid negative environmental impacts and waste creation throughout the whole life-cycle;
• Promoting the replacement of products by services.

• Sectors most suited?

The following are the most frequent sectors in which we find CPP, but it could be applied to all sectors, according to the business model and the criteria in the tender:

• Office furniture (e.g. paper, electric & electronic equipment, etc.);
• Catering in public restaurants (e.g. local and/or organic food or similar, etc.);
• Public buildings (e.g. passive buildings, buildings with material identification in order to facilitate deconstruction, etc.).

• Circular Economy

Circular economy is an economic system that revolves around efficient and effective handling of raw materials. The reusability of products and materials plays a central role, in contrast with the current linear system, in which products are considered waste at the end of their lifetime and lost.

Within a circular economy, raw materials and products are re-deployed in the highest quality possible. With this, a differentiation is made between a biological and technical cycle.

• Cascades

Cascading is ensuring that products or components are further included in a new cycle that is as close as possible to the current cycle. This ensures the least amount of value loss. This process occurs like a cascade, or actually a stepped succession of cycles. The closer to the start point the step is, the less value is lost. Cascades are possible both in the bio and in the technical cycle.

• High Value Reuse

The focus of circular public procurement lies with the retention of the value of products and materials. This asks for an approach in which raw materials and waste are (re)deployed with the highest possible value in order to maximize the lifetime.

• The Multi-R Approach to Circularity

For a concrete understanding of high value reuse, Prof. Dr. Jacqueline Cramer developed the 10 Rs to make distinction between different levels of circularity: Refuse, Reduce, Redesign, Re-use, Repair, Refurbish, Remanufacture, Re-purpose, Recycle, and Recover.

• Chain Collaboration

Circular public procurement requires producers, suppliers, buyers, users and waste managers to cooperate in order to take collective steps in the direction of circular economy. With circular public procurement, the emphasis lies with the chain collaboration working in this manner. This asks not only for a change of mindset from the supplier, but also fromthe procurer.

• TCO and TCU

TCO stands for Total Cost of Ownership and TCU stands for Total Cost of Usage. Both calculation methods take into account the purchasing cost and the cost of using the product during its lifetime. Often during purchasing, only the purchasing price is considered and the cost of use is neglected.

TCO is used when the product is bought and the user becomes the owner of the product, while TCU is used when a service is received and the ownership of the supplied goods stays with the supplier.

•    How is it possible to ensure that what is bought after the use phase has the highest possible value? “What possibilities does the supplier offer for taking back and (high-quality) reuse of purchased carpet tiles?”
•    How long should the product ideally function? “Do we ask for an office chair that only works its economic lifespan, or do we ask for design for maximum life?”
•    Is there a need for ownership over a product? Or is there a need for functionality? “Do we need some lamps or do we want ‘light’?”
•    Do we want to pay for the use of a product? Or do we want to pay for having a product available? “Do we pay for the use of a (company) car (in kilometres), or for the fact that we have this (company) car at our disposal?”
•    What is the desired end goal? “Do we want a gym or playground in a neighbourhood, or do we want a place where people can move and have fun?”

The next parts of this guide further elaborate on the “’how-question” of circular public procurement: the various purchasing phases, possible contract types and criteria, and many opportunities and challenges mentioned.

Internal Support
It is possible you have been working with circular procurement for a long period of time, but for many of your colleagues it is still new territory. This is why it is important that you lead your organisation so that there is support for your plans and the ambition for circular procurement comes to realisation.

Bring different internal stakeholders together to enlarge the support for circular procurement. Involve multiple layers with the organisations. Managerial support is essential to cement the goals on circular procurement in the purchasing process, so that the procurement department have the necessary knowledge and tools to implement it and bring circular procurement to practice and advise project managers.

Market Exploration
Unlike with a normal purchasing process, you are most likely not sure what suppliers can offer or how you should include circularity within your purchasing process. This is why a thorough market exploration is crucial. This way you gain knowledge on circular products and services that are available on the market. Public purchasing organisations can also use this pre-competitive phase in order to open dialogue with suppliers. This will improve your ability to ensure you are not over or under demanding for the market.

For a circular market exploration, you can organize market consultations and market dialogues.

During the formulation of the request it is important to think about the selection as well as the rewarding criteria. It is possible to select a number of parties on the basis of circularity through a selection criterion. These parties can then put forward a proposal.

Awarding Criteria
The creation of an awarding criterion is not simple. In drafting the award criteria, it is fundamental to think about the different levels on which the supplier can offer insight on the possibilities and securing of circularity.

Product Design
The composition of the delivered product is important when concerning the design of the product. Some relevant questions can be: is the product suitable and designed for reuse, during which the value of the materials and components will remain as high as possible?

Production Process
The production process is about the circumstances of the products creation. Are the partners of the supplier also involved in circular production? Had renewable energy been used during the production process?

Usage Phase
This phase concerns the product’s technical and economic lifespan. Does the supplier keep in mind the maintenance program in order to bring about the optimal lifespan? Are there regular updates and controls included? Is the maintenance program secured?

Phase after Usage
This phase regards the securing of the process at the end of the product’s lifespan. What possibilities does the supplier offer for the return of the product? Do they assume responsibility over this return process? What is the expected residual value of the product at the end of the lifespan? How is this residual value included in the price?

During this phase all the conditions that the contractor has to fulfil are clearly stated, including the management, supply and aftercare of the product. The contract specifications can affect issues such as pricing, liability and risk distribution, also including sustainability.

The contract can be used to create incentives for a circular version, for example, a reward or discount that is linked to the extension of lifespan during execution or service. Such conditions are especially useful if the contract period is sufficiently long.

Unlike the above criteria, contract terms should not contain any standards: there should not be any disguised suitability requirements, selection criteria, minimum requirements or award criteria and any tenderer must be able to apply them.

Contract provisions must be already stated in the tender documents, so that tenderers can be aware and take this into account in their tenders. Contract provisions must always relate to the performance of the contract.

Once the procurement process has been completed and a product, service or work is purchased, there often exist possibilities for circular use. What happens at this stage can help determine the final gain of circular purchases. The life of a product can be extended or the product can be reused again.

In order for you to learn, as well as for the suppliers to be able to learn, a complete evaluation from beginning to the end of the process is necessary.

In this case the supplier/producer retains ownership of the product. Either the user pays for the use of the product and is not the owner (pay per use contract), either the user pays for the solution to their need and the supplier/producer owns and manages the material resources in order to come to the desired outcome (performance contract). In both cases, the supplier attempts to reuse the product as much as possible by the end of the lifetime.

Figure 1: Product Service System, Plan C, Circular Flanders, Source: A. Tukker en U. Tischner e.d. (2006).

Read more about Plan C and Circular Flanders.

In this type of contract an agreement is reached in which the supplier/producer ensures optimum value retention and quality recycling of the product after use and is also accountable for this. On his side, the user has the obligation to take proper care of the product.

Integrating Return Guarantee with Lifetime Guarantee
The ABN AMRO Group has introduced “lifetime warranty” redemption with its suppliers: they agree on lifetime guarantees for components of the system, and if a component needs to be replaced earlier than expected (both labour and materials), it is paid pro rata. For example, if a part is supposed to last 10 years, after 5 years it is already defective, then the purchasing organisation will pay 50% of the labour and 50% of the materials.

With this agreement, ABN expects the supplier to rise the challenge and improve their components (innovation) in order to avoid early replacement. Ultimately, the idea is to move towards buying a system with a return policy, in combination with a lifetime guarantee, therefore giving the supplier the opportunity to innovate the whole system with improved parts and quality.

A further alternative is purchase-resale. This option is suitable for product groups that individually represent insufficient value, and are consequently not interesting for the supplier to be retrieved and reused. However, a waste processor can give input about which flows are suitable for processing. When purchasing, it is determined how and by whom the collection will take place after the use of the item/product in order to be able to reuse the materials: waste from one becomes raw material for another.

Circularity Objectives
Having an intra-organisational goal in terms of circularity helps the organisation itself to take internal steps towards a more circular work and inspire others to assist. A definition of circularity is not focused on MVO-criteria, water, CO2 or waste, but focuses instead on the complete reuse of all materials derived from product (/components). This goal should be included in the strategic policy of the organisation, and assessed as follows:

Waste Reduction Goals
Waste reduction within the production process is the first step towards circularity, and for many companies is a lot more concrete step to undertake. Setting waste reduction goals is a step that prevents material use, and thus reduces the need for high-quality reuse. This is assessed as follows:

Quality Reuse Objectives
High-quality reuse can differ per type of product. It is up to the buyer to make the choice of high-quality reuse relevant to the tender. This choice concerns materials, parts and products. Three examples: an infrastructure tender can involve materials, a building can be parts and  the interior of an office can be products. The goals can be assessed as follows:

Lifetime Optimisation Goals
Having a goal for the extension of the products lifetime stimulates organisations to design products for a long lifetime, and work more intensively for the repair of quality products. This is assessed as follows:

Key Performance Indicators
Having key performance indicators for the measurement of circularity says a lot about how serious a company is working with the theme of circularity. Period X is to be completed by the contracting organisation, based on a tender for the relevant period. This is assessed as follows:

Chain Overview
Having an overview of the parties in the production line is an essential step to make cooperation possible. In addition, cooperation always leads to further optimization because parties receive insight into each other’s opportunities and challenges. This is assessed as follows:

Origin and Composition Materials
When an organisation knows of which materials their products/components consists of, down to the ppm level of X substance, it will also be clear if it contains potentially harmful substances. This review per product level is not requested whether a company has drawn up a commodity passport. This is assessed as follows:

Collaboration Around Design
Having contact with designers and other parties in the chain can lead to a product that can be reused with quality. This chain cooperation can lead to optimisation for multiple parties. This can be assessed as follows. When the organisation as well as the designer is the producer, this requirement expires.

Return of Products
The possibility for the return of products is a first step in the reuse of materials, though it is not guaranteed that suppliers will not consider these returned products as waste. It is, however, crucial in creating awareness about the fact that waste can be resources. This is assessed as follows:

Expectation to Customer
Having expectations towards the customer concerning the use of products, shows that an organisation has a vision on how to optimally extend the products’ lifetime.  This is assessed as follows:

Circular Economy Activities
The proactive involvement in activities surrounding circular economy shows that the organisation is looking beyond its own production chain, for example to find new possibilities for cooperation and knowledge outside that. Through this, the organisation contributes to increase the development of circular economy. This is assessed as follows:

Material Risk Availability
An organisation that knows which materials can possibly become scarce and which materials can still be available on the long term, can respond to these risks (both in terms of delivery assurance and economic implications) and can choose for other materials in time. This is assessed as follows:

Harmful Components
The supplying organization is (partly) responsible for possible negative consequences from harmful components. Even if present in small quantities, those can, during or after the use period of a product, have negative impact on health and the environment. Additionally, the presence of these harmful components could be an obstacle for quality reuse. This is assessed as follows:

Circular public procurement offers many opportunities on a financial as well as societal level. But circular public procurement also offers changes for our development in the procurement process as such. Innovative procurement methodologies and strategies such as Best Value Procurement and Competitive Dialogue are frequently applied for circular public procurement projects. Additionally, the inclusion of international positioning as well as chain partners is important for success. There are multiple perspectives that offer the buyer opportunities for growth.

Once people realise what circular public procurement can mean, a combination of enthusiasm and confusion emerges: enthusiasm because suddenly there are lots of opportunities, while simultaneously, this mass of opportunities also creates confusion, “where to begin?”.

Redeem a chance
On the basis of practitioners’ experience (in particular MVO and PIANOo), the first advice is: do not search too long for the best chance, but redeem a chance. With this motto, it is prudent to select a product category that is not attached to the core process of the organisation. If you start too closely to the core processes, the risk of resistance and cold feet becomes greater than with non-product related categories.

Product Categories for a flying start
It is also recommended to start with a product type whose complexity and lifetime can be overseen. If the complexity of the product is large (for example a mobile phone) or the lifetime too long (for example a lock gate), then it is not the most obvious choice with which to build the first learning experience.

Products with a low or middle level complexity and lifespan, such as office furniture, (work) clothing, lighting and relatively simple installations offer more room for experimentation with, for example, lease contracts, return logistics and buy-resell agreements.

Not Enough Knowledge about Circular Public Procurement
Circular public procurement is still a relatively new territory. Consequently, not every co-worker who is involved in the procurement process has enough knowledge on circular public procurement and the impact of this within his or her function. This road map can help as a first introduction to circular public procurement.

Comparing Offers
One of the difficult parts of circular public procurement is the comparison of offers. One possible solution is predetermining a SMART assessment framework with each circular criterion that is developed. For contracting authorities it is important that the criteria are proportionally transparent, objective and not discriminatory.

Insufficient Internal Support
There is insufficient internal support for circular public procurement, for example because a procurer wishes to have a new product, or put a product as property on its balance. One possible solution lies in giving a more concrete explanation on the importance of changing the working method. This will create a better understanding and often leads to more support from the stakeholders (and from the client/procurer).

Separate Budgets
There are separate budgets for procurement, management, administration and dismissal. One possible solution lays in offering a (real-time) complete report on the different budgets attached to the collective (main) goal of the process or the organisation.

Misuse
The user is less careful with a product if it is not the property of his organisation. Consequently, more maintenance is necessary. One possible solution is to regularly check products and make usage agreements with suppliers.

Strategic Conflicts
Goals for circular public procurement can be contradictory with other goals, for example unsustainable biomass. One possible solution is an integral approach from the strategic perspective with a clear (main) goal, in which both financial as well as social aspects emerge.

Insufficient Monitoring Capabilities
Commitments from suppliers cannot or are insufficiently monitored. One possible solution is ensuring concrete commitments, and then performing self-monitoring.