Greening Procurement In Canada: New Implications For The Construction Industry And Beyond – Construction & Planning

In December 2022, the Treasury Board of Canada announced two new standards under the Canadian Standards Green Procurement Policy(the “politics“):¹

1. the Standard for embodied carbon in construction which came into force on December 21, 2022;² and




2. the Standard for disclosing greenhouse gas emissions and setting reduction targetswhich will come into effect on April 1, 2023.³

These new standards support a number of commitments made in Canada Ecological Government Strategy.⁴

What is the Green Procurement Policy?

Established in 2006, the policy aims to reduce the environmental impact of government activities by integrating environmental considerations into the procurement process. It directs federal departments and agencies, including Public Services and Procurement Canada, to integrate environmental considerations into the procurement decision-making process for the purchase of all goods and services.⁵

Until the two new standards announced last month, the policy focused on overarching goals. For example, deputy department heads were (and remain) “accountable”:⁶

• “Integrating environmental responsibility and life-cycle principles into procurement planning and practices”;




• “Set green procurement targets tailored to mandates”; and




• “Buy green goods and services that are proven to be good value for money”.⁷

Contrary to these objectives, the new standards impose specific obligations on contracting authorities and thus also on providers.

Standard for embodied carbon in construction: Supporting net zero carbon concrete

I. application

the Embodied Carbon in Construction Standard, targeting carbon in concrete in general is already in effect and will apply to procurements initiated after December 31, 2022. This standard applies to procurement for planning services and for construction services^8th for projects worth $10 million or more that are expected to use more than $100 million³ from precast concrete. This minimum threshold will be lowered to $5 million projects after 2024.⁹

Currently, the standard only covers ready-mix concrete, supporting the government’s goal of positioning Canada as the world’s leading producer and exporter of low-carbon cement.¹⁰ The materials covered may be expanded in the future.

This standard does not currently apply in the Yukon, Nunavut or the Northwest Territories due to limited availability of low-carbon options.¹¹

ii. requirements

While the standard imposes both carbon disclosure and carbon reduction requirements for such procurements related to design services, procurements for construction services are only subject to disclosure requirements. In particular, the standard requires vendors to disclose, on a project basis, the embodied greenhouse gas emissions of certain structural materials. Vendors must use the Embodied Carbon Disclosure Template (theDisclosure Template“) before project completion.¹²The disclosure template asks for information such as contractor and material supplier information, identification of the concrete used in the project, project mix strengths, and calculations of baseline and reduced greenhouse gas emissions.

In preparing to complete the disclosure template, vendors should engage a qualified environmental consultant to assist with greenhouse gas emissions calculations and budget appropriately for this work. Advice from environmental consultants on carbon capture and storage technologies and related products should also be considered to ensure not only that the information provided in the disclosure template is accurate, but also that Canada’s environmental policies are met and claims made by vendors in related to sustainability Your project is verifiable.

Contracting authorities are required to provide a consolidated report of all disclosure templates received, detailing the embodied carbon footprint for all construction projects completed during the year that meet or exceed the applicable thresholds.

In addition to disclosure, design service providers must also reduce the carbon footprint of the ready-mixed concrete by at least 10% compared to the initial mix. Carbon dioxide harvesting and storage technologies can be used to reduce the global warming potential of some or all of the concrete supplied to a project. The reduction requirement must not apply if “the required performance of a building material is contrary to implementation [reduction]” or “if a material is not available in a particular region”.¹³ In both cases, the registered engineer can present an exception justification, which must be submitted to the responsible federal organization.¹⁴

For more information on ESG initiatives in the construction and development industry in general, see our previous bulletin here.

Standard for disclosing greenhouse gas emissions and setting reduction targets

the Standard for disclosing greenhouse gas emissions and setting reduction targets comes into force on April 1, 2023.

This Standard applies to material supply procurements after the Effective Date that are greater than $25 million in value, inclusive of taxes. It requires contracting authorities to “ensure” that the procurement process “is initiated[s] key suppliers” to measure and disclose their greenhouse gas emissions and adopt an emissions reduction target consistent with the Paris Agreement or equivalent.^fifteen

This standard is broad because it imposes this obligation on all suppliers for procurements over US$25 million. However, there are a number of exceptions: The standard does not apply to procurements made by emergency contractors or those set up by foreign military sales. If it is determined that application of the standard is “not feasible or appropriate,” the standard does not apply, although a justification for its non-applicability must be provided and then approved by the appropriate deputy manager.¹⁶

Possible effects

Vendors in the industry who intend to participate in a federal government procurement for goods or services should now begin to consider how to adjust their bid responses to reflect these additional standards. Even those who do not deal directly with a contracting authority may find themselves subcontracting for such a project and therefore subject to similar contractual obligations. Additionally, we may see other owners and industry players adopting similar standards in their own private procurement processes as stakeholders become more aware of ESG factors.

At a time when market forces, including supply chain disruptions, are already affecting pricing, the ability and willingness to bid on projects (including public infrastructure), it would not be unexpected if such increased demands on bidders increased lower bids or higher bid amounts. It is unclear if this is expected by government procurement teams and if they are taking steps to address the potential impact (e.g. increased budgets).

Conclusion

By adopting these standards, the Treasury Board furthers its goal of reducing the Canadian government’s impact on climate change. Suppliers should be prepared to meet these requirements for upcoming federal government procurements. If you have any questions, including how to prepare for these requirements, please contact the authors of this bulletin.

footnotes

1. Treasury Board of Canada Secretariat, Contracting Policy Notice 2022-3: Introducing two standards under the Policy on Green Procurement (16 December 2022).

2. Standard for embodied carbon in construction(November 14, 2022).

3. Standard for disclosing greenhouse gas emissions and setting reduction targets(November 24, 2022).

4. Treasury Board Secretariat, Greening Government Strategy, ISSN: 978-0-660-24164-7.

5. For a list of federal departments and agencies covered by the Policy, see Section 2, Appendix I and Appendix I.1 of the
Financial Management Act, RSC 1985, C.F-11.

6. Secretariat of the Treasury Board, Green Procurement Policy(2018) ISBN: 978-0-660-26635-0, see 7.2.

7. Secretariat of the Treasury Board, Green Procurement Policy, (2018) ISBN: 978-0-660-26635-0, pp. 7.2.1, 7.2.3 and 7.2.4.

8th. Standard for embodied carbon in construction, (November 14, 2022), pp. 3.2.2 and 3.2.3.

9. Standard for embodied carbon in construction(November 14, 2022), Appendix A.

10. Innovation, Science and Economic Development Canada, Government of Canada and Cement Association of Canada release Roadmap to Net-Zero Carbon Concrete by 2050, November 9, 2022.

11. Standard for embodied carbon in construction(November 14, 2022), Appendix A.

12. Standard for embodied carbon in construction(November 14, 2022), Appendix B.

13. Standard for embodied carbon in construction(14.11.2022), see 4.3.

14 Standard for embodied carbon in construction(November 14, 2022), Appendix C.

fifteen. Standard for disclosing greenhouse gas emissions and setting reduction targets, (November 24, 2022), pp. 1.1 and 3.2.1.

16 Standard for disclosing greenhouse gas emissions and setting reduction targets(24.11.2022), see 5.3.

The foregoing is for an overview only and does not constitute legal advice. Readers are cautioned not to base any decisions solely on this material. Rather, specific legal advice should be obtained.

© McMillan LLP 2021