The Federal Acquisition Regulatory Council (the “FAR Council”) currently is considering amendments to the Federal Acquisition Regulation (“FAR”) that would elevate the consideration of climate-related risks in Federal Government contracting. The draft proposed rules aim to implement key sections of two Executive Orders (“E.O.s”) signed by President Biden in 2021, both of which call for consideration of climate-related changes to the FAR, including:
- Requiring major federal suppliers to provide public disclosures regarding their greenhouse gas emissions and climate-related financial risk, and set science-based targets for reduction (E.O. 14030, Sec. 5(b)(i); FAR Case 2021-015);
- Requiring agencies to consider and minimize climate risk in major agency procurements (E.O. 14030, Sec. 5(b)(ii); FAR Case 2021-016); and
- Setting goals for the procurement of sustainable products and services, updating the definition of “biobased product,” and reorganizing and clarifying FAR Part 23, Environment, Energy and Water Efficiency, Renewable Energy Technologies, Occupational Safety, and Drug-Free Workplace (E.O. 14057, Sec. 208; OMB Memorandum M-22-06; FAR Case 2022-006).
Background on the Relevant Executive Orders
Since taking office in January 2021, the Biden Administration has worked to tackle climate change, sustainability, and environmental justice through a series of Executive Orders as well as related OMB guidance and a new Federal Sustainability Plan. The proposed rules currently being drafted are part of the Biden Administration’s ambitious plan to have the Federal Government lead the effort to drive assessment, disclosure, and mitigation of climate pollution and climate-related risks in the U.S. economy, and use the Government’s buying power to promote private sector investments that address climate change and sustainability. The following bullet points outline some of the key Federal procurement-related provisions of E.O.s 14008, 14030, and 14057, including the previously discussed provisions in E.O.s 14030 and 14057 directing proposed amendments to the FAR.
E.O. 14008, Tackling the Climate Crisis at Home and Abroad (Jan. 27, 2021)
- Section 205, Federal Clean Electricity and Vehicle Procurement Strategy, establishes a plan to use Federal procurement to achieve or facilitate (i) a carbon pollution-free electricity sector by 2035; and (ii) clean and zero-emission vehicles for Government fleets.
- Section 206, Procurement Standards, requires agencies to adhere to Made in America Laws when making clean energy and energy efficiency procurement decisions and asks the Chair of the Council on Environmental Quality (“CEQ”) to consider taking additional steps to assist the FAR Council in developing amendments to the FAR aimed at reducing Federal contractors’ carbon emissions and increasing Federal sustainability.
- Section 210, Clean Energy and Financial Management, requires heads of agencies to identify opportunities for Federal funding to “spur innovation, commercialization, and deployment of clean energy technologies and infrastructure,” and take steps to ensure Federal funding is in line with these opportunities.
- Section 211, Climate Action Plans and Data and Information Products to Improve Adaptation and Increase Resilience, requires heads of agencies to draft and submit climate action plans describing steps the agency will take “to bolster adaptation and increase resilience to the impacts of climate change” with respect to agency facilities and operations. Plans must address using “the power of procurement” in order to increase energy and water efficiency in Government facilities, drive innovation, and increase resilience against supply chain disruptions. Federal Climate Adaptation Plans can be found here.
- Section 213, Sustainable Infrastructure, requires that “Federal infrastructure investment reduces climate pollution” and that “Federal permitting decisions consider the effects of greenhouse gas emissions and climate change.”
E.O. 14030, Climate-Related Financial Risk (May 20, 2021)
- Based on the policy that the Federal Government manage climate-related financial risk in its own procurements and drive the adoption of key measurement, assessment, disclosure, and mitigation processes in the private sector, Section 5(b)(i) of this E.O. directs the FAR Council, in consultation with the Chair of the CEQ and heads of other agencies, to consider amending the FAR to “require major Federal suppliers to publicly disclose greenhouse gas emissions and climate-related financial risk and to set science-based reduction targets.” FAR Case 2021-015, Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk, implements this section, and a draft proposed rule is in process.
- Section 5(b)(ii) directs the FAR Council, in consultation with the Chair of the CEQ and heads of other agencies, to consider amending the FAR to “ensure that major Federal agency procurements minimize the risk of climate change, including requiring the social cost of greenhouse gas emissions to be considered in procurement decisions and, where appropriate and feasible, give preference to bids and proposals from suppliers with a lower social cost of greenhouse gas emissions.” This provision also requires agencies to submit actions to integrate climate-related financial risk into agency procurement processes (subject to any relevant changes to the FAR). FAR Case 2021-016, Minimizing the Risk of Climate Change in Federal Acquisitions, implements this section, and a report on the draft proposed rule is due June 15, 2022.
E.O. 14057, Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability (December 8, 2021)
- Section 102 establishes seven goals to be achieved through the use of the Federal Government’s scale and procurement power, including:
- 100% carbon pollution-free electricity by 2030;
- 100% zero-emission vehicle acquisitions by 2035, including 100% zero-emission light-duty vehicle acquisition by 2027;
- A net-zero emissions building portfolio by 2045, including a 50% reduction in emissions by 2032;
- A 65% reduction (from 2008 levels) in scope 1 and 2 greenhouse gas emissions by 2030;
- Net-zero emissions from Federal procurement, including a Buy Clean policy for construction materials with lower embodied emissions and pollutants;
- Climate-resilient infrastructure and operations; and
- A Federal workforce focused on the climate and sustainability.
- Section 207, Reducing Waste and Pollution, requires agencies to minimize waste by, among other things, supporting markets for recycled products and promoting transition to a circular economy.
- Section 208, Sustainable Acquisition and Procurement, sets forth agency goals for sustainable acquisition and procurement, including “prioritizing products that can be reused, refurbished, or recycled; maximizing environmental benefits and cost savings through use of full lifecycle cost methodologies; purchasing products that contain recycled content, are biobased, or are energy and water efficient…and purchasing sustainable products and services identified or recommended by the Environmental Protection Agency (‘EPA’).” Additionally, the Chair of the CEQ is required to consider establishing policies for Federal food procurement aimed at reducing greenhouse gas emissions and driving Federal food supply chain sustainability.
- Section 301, Federal Supply Chain Sustainability, requires agencies to “pursue procurement strategies to reduce contractor emissions and embodied emissions in products acquired or used in Federal projects.”
- Section 302, Supplier Emissions Tracking, requires the Administrator of the General Services Administration (“GSA”) to track disclosure of “greenhouse gas emissions, emissions reduction targets, climate risk, and other sustainability-related actions by major Federal suppliers,” based on the information collected through the supplier disclosures under E.O. 14030 section 5(b)(i), discussed above.
- Section 303, Buy Clean, directs the Buy Clean Task Force to provide recommendations for policies and procedures to address expanded consideration of the embodied emissions and pollutants of construction materials in Federal procurement.
- Section 509, Government-wide Support and Collaboration, directs the Secretary of Defense, Secretary of Energy, and Administrator of GSA to use the Federal Government’s purchasing power to “aggregate and accelerate new carbon pollution-free electricity generation capacity” in order to meet the energy needs of the Federal Government. Additionally, the Secretary of Transportation and Administrator of GSA are to coordinate with States, Tribes, and local governments to increase adoption of zero-emission vehicles, including through the use of Federal acquisition programs for non-Federal purchasers.
- OMB memorandum M-22-06, Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, was issued on the same day as E.O. 14057, and provides direction for agency compliance with the E.O. FAR Case 2022-006, Sustainable Procurement, implements E.O. 14057 and OMB Memorandum M-22-06 for the procurement of sustainable products and services. A report on the draft proposed rule is due June 15, 2022.
- The Biden Administration also published a new Federal Sustainability Plan to accompany this E.O., which sets forth goals to reduce emissions, create climate-resilient infrastructure and operations amongst Federal agencies, develop a workforce focused on climate and sustainability, advance environmental justice and ensure Government contracting and procurement opportunities are available on an equal basis, and develop domestic and international partnerships to facilitate progress on these goals. The Plan can be accessed at www.sustainability.gov.
How Businesses Can Prepare
The new proposed rules addressing climate-related disclosures and consideration of greenhouse gas emissions and climate-related risk in procurement decisions are likely to result in increased obligations – and increased risks – for Federal contractors. As discussed, reports on two of the proposed rules are due on June 15, 2022, likely followed by a notice of proposed rulemaking and comment period soon after. If they have not done so already, Federal suppliers should begin developing and implementing processes and systems to track information about greenhouse gas emissions both on a companywide basis and with respect to individual procurements, anticipating new rules that will require climate-related disclosures. (Although the FAR and E.O. 14030 do not define who qualifies as a “major Federal supplier” or what qualifies as a “major Federal agency procurement,” it is likely the proposed rules will provide more clarity regarding covered contractors and procurements.) For registered public companies, these requirements could involve added effort in addition to those being undertaken in response to the U.S. Securities and Exchange Commission’s (the “SEC”) proposed rule on “Enhancement and Standardization of Climate-Related Disclosures.” Companies also should be aware that with new disclosure obligations come new compliance risks, including the possibility of False Claims Act (“FCA”) and tort liability (e.g., fraud, misrepresentation).
Executive Orders 14008, 14030, and 14057 also create potential new opportunities for firms, including traditionally commercial firms that have not done business with the Federal Government in the past, to break into the procurement landscape. Firms that provide products or services that can help the Federal Government achieve its goals (including realizing carbon-pollution-free electricity, procuring zero-emissions vehicles and related infrastructure, investing in innovative clean energy technologies, increasing energy and water efficiency in Federal facilities, increasing resilience against climate-related supply chain disruptions, and prioritizing products that can be reused, refurbished, or recycled) should familiarize themselves with the rules and specific risks related to Federal procurement, including commercial-item procurement. Sheppard Mullin’s Governmental Practice Commercial Items team and Government Business Group have extensive experience helping commercial companies prepare and effectively sell to the Federal Government, either directly or indirectly through a supplier or reseller.
Sheppard Mullin’s ESG and Sustainability Team
Sheppard Mullin’s ESG and Sustainability Team takes a holistic approach, bringing together expertise spanning a range of relevant legal disciplines and providing comprehensive advice and representation from a single law firm to help clients manage risks, take advantage of opportunities, achieve synergies and advance diverse priorities. This means we work across practice groups, geographies, industry teams and client teams.
Our Team is dedicated to helping our clients navigate ESG and sustainability challenges and opportunities and, in doing so, enabling them to achieve their business objectives.
 The Department of Defense (“DoD”), General Services Administration (“GSA”), and National Aeronautics and Space Administration (“NASA”), published an Advance Notice of Proposed Rulemaking on October 15, 2021, opening the public comment period on potential amendments to the FAR regarding climate-related financial risks. The comment period closed on January 13, 2022.
 The Administration’s proposed budget for FY23 includes over $750 million for GSA and other agencies to help achieve this goal. U.S. General Services Administration Electric Vehicles Fund Fiscal Year 2023 Congressional Justification.
 On May 5, 2022, Attorney General Garland and the Environmental Protection Agency’s Administrator Regan announced the launch of a new Environmental Justice enforcement strategy and the creation of the Department of Justice’s (“DOJ’s”) first Office of Environmental Justice. The Guidance outlines the DOJ’s plans to focus on environmental harm and enforcement this year, including by using tools like the FCA to address misconduct. Given the DOJ’s new focus on environmental harm, contractors would do well to ensure they have appropriate internal controls in place to minimize risks of making false environmental certifications or statements to the Government.