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Climate Change Alert

The Greening of Federal Government Contractors

Thursday, February 21, 2008

Recent developments have thrust federal and state agencies as well as government contractors to the forefront of the “green” movement. Proposed policy changes will place significant new obligations on government contractors and agencies alike. However, since all bidders must meet these criteria, in the short-term those who understand and adapt more quickly to these green standards may have a competitive advantage.

Significant environmental requirements have governed private sector activities since at least the early 1970s. In recent years, federal, state and local governments have developed programs to encourage the private sector to adopt more environmentally friendly (or sustainable) technologies and processes, even where there is no enforceable requirement.

For example, the Environmental Protection Agency (EPA) and the Department of Energy (DOE) encourage energy efficiency through programs such as the ENERGY Star program. The EPA also supports the development of less-polluting energy technologies (e.g., the Clean Energy program) and methods of mitigating climate change.

Federal Green Purchasing and Acquisition Programs

On December 28, 2007, the Office of Federal Procurement Policy proposed the Acquisition of Green Products and Services Policy that will govern the purchasing policies and affirmative procurement programs for all government contracts and acquisitions.1

The proposed policy would require federal agencies to give preference to green products and services, including alternative fuels and alternative fuel vehicles; bio-based products; Energy Star and Federal Energy Management Program designated products; electronics registered on the Electronic Product Environmental Assessment Tool; low or non-toxic or hazardous chemicals or products; non-ozone depleting substances; recycled content and/or remanufactured products; renewable energy; and water-efficient products.

The proposed policy also:

  • requires agencies to first consider mandatory and preferred sources to obtain green products and services that meet their performance needs. Where these sources are unable to meet their needs, the policy requires agencies to purchase green products and services from other sources.
  • requires agencies to implement automatic substitution policies for the purchase of functionally equivalent green products and services in place of non-green options ordered through central supply agencies
  • requires the General Service Administration (GSA), the Defense Logistics Agency, and other central supply agencies to procure designated green products and phase out any competing non-green products from their catalogs and online ordering systems
  • requires agencies to include requirements and preferences for the use of green products in all new service contracts and other existing service contracts. The policy also encourages agencies to incorporate these requirements and preferences into existing contracts as they are modified or extended through options.

The scope of this policy is broad. As long as it is life-cycle cost effective to do so, when acquiring leased space, entering contracts to construct buildings and purchasing other major assets, federal agencies must follow the five “Guiding Principles for High Performance and Sustainable Buildings” identified in the Federal Leadership in High Performance and Sustainable Buildings Memorandum of Understanding and related technical guidance found in the Whole Building Design Guide (www.wbdg.org). The goal, when it is life-cycle cost effective, is to ensure that new buildings are 30 percent more energy efficient than the 2004 International Energy Conservation Code for residential buildings or the American Society of Heating, Refrigerating, and Air-Conditioning Engineers Standard 90.1–2004 for non-residential buildings.

Also under the proposed policy, GSA and or other federal fleet service providers shall, to the maximum extent practicable, include requirements for increasing alternative fuel use, retread tires, re-refined motor oil, biolubricants, and other vehicle related products designated as recycled content, energy efficient, bio-based or environmentally preferable and reducing petroleum use to the maximum extent practicable.

Exemptions from these purchase requirements require written justifications that such items are not reasonably available within the time required, the items are only available at an unreasonable price (based on life-cycle cost), the items are not available from a sufficient number of sources to maintain a satisfactory level of competition, or the items are not reasonably available to meet the functional requirement of the agency.

Green Regulation of Federal Buildings

Other green policies that apply to federal agencies will affect a government contractor’s compliance with the final Federal Green Products and Services Acquisition Policy. For example, the DOE issued regulations on December 21, 2007, requiring new federal buildings to achieve at least 30 percent greater energy efficiency over prevailing building codes.2 These standards apply to new federal commercial and multifamily buildings.

The standards become effective “at the design stage when the impact of the rule needs to be accounted for in the procurement process. Specifically, this is the stage when the energy efficiency and sustainability details (such as insulation levels, HVAC systems, water-using systems, etc.) are either explicitly determined or implicitly included in a project cost specification.” However, if before January 3, 2007, “energy efficiency and sustainability details were incorporated into a building design, and thus a costly redesign would be required to meet this rule, the new rule is not applicable.”

These standards require a 30 percent increase in energy efficiency compared to current federal regulation. Over the next 10 years, these regulations are estimated to save taxpayers $776 million and more than 40 trillion British Thermal Units (BTUs) of energy, while reducing about 2 million metric tons of carbon dioxide. The proposed Federal Green Products And Services Acquisition Policy explicitly cites the 30 percent energy efficiency goal in the rule for new federal buildings. As this guidance changes over time, government contractors will face more stringent requirements.

DOD Guidance on Assessing the Risk of Climate Change

Currently, there is no existing comprehensive federal climate change legislation; although several states have mandated greenhouse gases (GHG) emission reductions. However, Congress is considering at least five major Senate bills that would impose mandatory GHG emission reductions using a combination of “command and control” and economic mechanisms. The Lieberman-Warner America’s Climate Security Act was approved by the Senate Committee on Environment and Public Works and sent to the full Senate on December 5, 2007. According to the sponsors of the Lieberman-Warner Act, U.S. emissions would be reduced to approximately 63 percent of the total U.S. 2012 GHG emissions by 2050 if it is enacted.3 It is generally accepted that compliance with climate change regulations will be enormously expensive.

Even though comprehensive federal climate change legislation has not yet been enacted, certain government contractors may still have to strive to be increasingly “green.” Congress has directed the Department of Defense to provide guidance for military planners in their assessment of “the risks of projected climate change to current and future missions of the armed forces” and to update defense plans to incorporate climate change mitigation strategies, capacity building, and relevant research and development.4 This appears to be a precursor to federal efforts to reduce GHG emissions.

What Should Government Contractors Do?

Individual government contractors or pre-existing/ad hoc groups of government contractors can take several proactive steps.

First, contractors can comment on proposals, particularly the proposed green products and services acquisition policy. The Office of Federal Procurement Policy is seeking public comments until February 26, 2008. However, each federal agency must issue its own rules before they become effective in that agency’s contracts, so there will be other opportunities to comment as these agencies propose their rules.

Some key issues that are likely to arise during the commenting period include the meaning of terms such as “maximum extent practicable,” “life-cycle cost effective,” and “not reasonably available to meet the functional requirement.” Comments should seek to clarify the meaning of these terms.

Second, if this guidance is adopted, it will be prudent to implement an environmental audit to determine what, if any, additional environmental measures or documentation is needed to comply with the green products and services acquisition policy. Inevitably, this will identify areas where life-cycle cost effectiveness, practicality and functionality may be an issue. It may be useful to determine whether the company complies with this policy prior to submitting a contract proposal.

Third, government contractors will need to address in their contract bid documents how they are meeting the policy requirements or why one or more of the exemptions apply. In the early stages of the implementation of these requirements, government contractors should be particularly diligent in documenting these issues or it could adversely affect a company’s ability to obtain the contract.

Fourth, government contractors that also have divisions that are not government contractors need to decide whether to have one company-wide green policy or to adopt a separate policy for its government contracting group. As a practical matter, it may be more cost-effective to have one policy.

Fifth, government contractors may be enticed to employ certain GHG reduction measures before they are legally required to do so, so the contractor should assess whether this “early action” generates climate change offsets, emissions allowances or other benefits. The early “greening” of government contractors could provide a competitive advantage against non-government contractors – especially if Congress enacts a comprehensive climate change program. Many of these more subtle and indirect implications should be assessed.

Finally, other companies also should consider these “green criteria” because this guidance is likely to become de facto voluntary standards for all of the private sector, not just federal contractors.

Endnotes

1 Office of Federal Procurement Policy; Acquisition of Green Products and Services, Proposed policy letter on the acquisition of green products and services, 72 Fed. Reg. 73,904 (December 28,
2007) (“Proposed Green Products and Services Acquisition Policy”), available at
http://edocket.access.gpo.gov/2007/pdf/e7-25211.pdf
. This policy implements Executive Order (E.O.) 13,423 (January 26, 2007), which directs agencies to strengthen the management of environmental, transportation, and energy-related activities, as well as various environmental and energy policy statutes.

2 Office of Energy Efficiency and Renewable Energy, Energy Conservation Standards for New Federal Commercial and Multi-Family High-Rise Residential Buildings and New Federal Low-Rise Residential Buildings, 72 Fed. Reg. 72,565 (December 21, 2007) (final rule), available at
http://edocket.access.gpo.gov/2007/pdf/e7-24615.pdf
(“Final Energy Conservation Standards for New Federal Buildings”); see also Daily Environment Reporter, No. 246, ISSN 1521-9402, (December 24, 2007) at A-12.

3 Pew Center on Climate Change, Lieberman-Warner Climate Security Act - S. 2191, Summary of Version Passed by Senate Environment and Public Works Committee on December 5, 2007, vailable at http://www.pewclimate.org/docUploads/Pew-S.2191-Summary-12.5.2007.pdf.
This estimate includes the impact of the cap, energy efficiency standards, and low carbon fuel standards.

4 H.R.1585, National Defense Authorization Act for Fiscal Year 2008, §951.

William J. Walsh

Written by

William J. Walsh
Phone: 202.220.1424
Fax: 202.220.1665
walshw@pepperlaw.com


The material in this publication is based on laws, court decisions, administrative rulings and congressional materials, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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