Some thoughts on circular economy and public procurement - a propos Witjes & Lozano (2016)

The emphasis on sustainability and more effective resource management in all dimensions of public policy or, in other words, the move towards a circular economy [as first formalised by RA Frosch & N Gallopoulos, 'Strategies for manufacturing' (1989) 261(3) Scientific American 144-152] has clear public procurement implications. This has been stressed in the recent Action Plan for the Circular Economy developed by the European Commission.

The Action Plan stresses several ways in which public procurement policy can be developed or adjusted. In particular, it indicates that

Public procurement accounts for a large proportion of European consumption (nearly 20% of EU GDP). It can therefore play a key role in the circular economy, and the Commission will encourage this role through its actions on Green Public Procurement (GPP), where criteria are developed at EU level and then used by public authorities on a voluntary basis. First, the Commission will make sure that in future, special emphasis is placed on aspects relevant to the circular economy, such as durability and reparability, when setting out or revising criteria. Secondly, it will support a greater uptake of these criteria by public authorities, and reflect on how GPP could be used more widely across the EU, in particular for products or markets that have high relevance for the circular economy. Finally, the Commission will lead by example, by making sure that Green Public Procurement is used as widely as possible in its own procurement, and by reinforcing the use of GPP in EU funding.
- The Commission will specifically consider proportionate requirements on durability and the availability of repair information and spare parts in its work on Ecodesign, as well as durability information in future Energy Labelling measures.
- In the revised waste proposals, the Commission proposes new rules which will encourage reuse activities.
- The Commission will work towards better enforcement of the guarantees on tangible products, examine possible options for improvement, and tackle false green claims
- The Commission will prepare an independent testing programme under Horizon 2020 to help the identification of issues related to possible planned obsolescence. This work would involve relevant stakeholders as appropriate.
- The Commission will take action on Green Public Procurement (GPP), by emphasising circular economy aspects in new or revised criteria, supporting higher uptake of GPP, and leading by example in its own procurement and in EU funding.

The Action Plan also specifies that 'Public authorities can also contribute to the demand for recycled materials through their procurement policies.'

All of this is very closely linked to a 'classical' understanding of green public procurement (GPP), on which the European Commission has recently published the third edition of its Buying green! Handbook, and points towards two main issues under the rules of Directive 2014/24: technical specifications (including preliminary market consultations aimed at their definition) and life-cycle costing methods as part of contract award criteria [for discussion, see A Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (Oxford, Hart, 2015) 327-336, 373-377 and 379-388]. Within this framework, it seems natural that contracting authorities can enjoy discretion to determine what to buy and, subject to requirements of technical neutrality (see here) and the avoidance of technical steering by undertakings involved in the market consultations (see here), and to the development of appropriate and transparent methodologies for life-cycle costing (which can be very challenging, if at all possible, see here), this should not require any changes in the applicable EU public procurement legal framework.

However, there is a different interpretation of the Action Plan for the Circular Economy that conflates resource-based issues linked to GPP with other socio-economic dimensions of a broader understanding of the circular economy. I find this very problematic because it is increasingly clear to me that environmental and social considerations cannot be assessed (or promoted) together--or, strictly, under the same rules and with the same leeway for contracting authorities--due to their different impacts on market competition and local protection, and to the fact that the EU has a significant volume of environment-related competences, whereas its ability to regulate in social matters is extremely limited, if not practically non-existent. Thus, a trend that bundles together the pursuit of environmental and social considerations as part of a broader understanding of smart or sustainable procurement can be analytically problematic and result in proposals that do not pass legal muster.

This is particularly clear in positions such as the one advanced by S Witjes & R Lozano, 'Towards a more Circular Economy: Proposing a framework linking sustainable public procurement and sustainable business models' (2016) 112 Resources, Conservation and Recycling 37–44, where the authors claim that 'a Circular Economy has been proposed as one of the latest concepts for addressing both the environmental and socio-economic issues. A Circular Economy aims at transforming waste into resources and on bridging production and consumption activities' (emphasis added). Their paper 'proposes a framework to include technical and non-technical specifications of product/service combinations that improve resource usage efficiency through recovery. The framework also considers socio-cultural specifications and physical and social proximity between the stakeholders in the procurement process. The framework is based on collaboration, which is a vital link between the public procurement process and the development of more sustainable business models'.

Their main claim is that a shift from product based procurement towards service-based sustainable public procurement (SPP) is desirable and likely to achieve superior results in terms of sustainability, which they represent as a change of paradigm in terms of engagement with suppliers from the (current) tender stage to a much earlier preparation stage (see graphs below).

In their own words: 'Long term collaboration during the SPP process requires a shift from the technical specifications set up by the procurer to a more collaborative discussion on, and definition of, the proposed technical and non-technical specifications between the supplier and procurer. In addition, socio-cultural specifications, such as beliefs and attitudes of the people contributing to the procurement process ... must be included in the SPP process. While the technical and non-technical specifications drive the supplier and procurer to develop products or services aiming for more resource efficiency, the socio-cultural specifications will help the parties to hire and train personnel specifically for the co-development process, addressing the Social innovation and Multi-stakeholder involvement components of the resource efficiency transformations proposed by the European Commission' in Directive 2014/24 [sic] (emphasis added).

I find this very problematic for several reasons. First, because the dialogue on (technical) environmental issues can be achieved through market consultations and the effective use of variant bids and technical equivalents, without creating market foreclosure at early stages of the procurement procedure. Second, because the suggestion that contracting authorities can select tenderers on the basis of 'socio-cultural specifications' (sic, criteria) simply runs against the case law of the Court of Justice of the European Union that bans the use of general corporate policies for the purposes of qualitative selection--as clearly stressed in the fair trade coffee case (Commission v Netherlands, C-368/10, EU:C:2012:284; for discussion, see Sanchez-Graells, Public procurement and the EU competition rules, 2nd edn (2015) 388). And, finally, because this sort of arguments do not discriminate between types of procurement and goods to be sourced by the contracting authority. There certainly has to be a (very significant) threshold for contracting authorities to team up at such an early stage and get involved in the development of the technical solution to its needs, which has traditionally been linked to the possibility to use a technical dialogue and, more recently, an innovation partnership procedure--both of which surely must remain exceptional in terms of the volume of (non off the shelf, highly complex, highly value added) procurement they channel.

Overall, then, I think that the discussion on the interaction between circular economy and public procurement should remain restricted to the maximisation of green public procurement in both an innovation-promoting and competition-neutral way. And I also think that the discussion on the use of public procurement to achieve social outcomes need to be kept separately and subjected to very strict proportionality requirements due to its high risk for abuse of discretion, protectionism and, more generally, poor procurement practices leading to reduced value for money (for extended discussion in view of RegioPost, see here). In particular, I find the idea that public procurement should be used to support the emergence and consolidation of alternative forms of (corporate) governance deeply troubling, and I do not think that the issue of collaboration between private and public sector should aim at pre-selecting the modes of business structure 'for the future', however sustainable they may present themselves. The use of (public) consumption as a form of undercover economic regulation is certainly undesirable. However, this seems to be an issue that may be favoured by current policy directions...