Fundamental principles of a circular economy

Discussion to date among public sector procurement specialists indicates a need for an agreed vision of what circular economy means and how to identify the key elements. If we can’t see the desired state, then how can we develop a framework of decision making that guides procurement decisions towards that outcome. While there is available to us a plethora of definitions and a growing body of micro-economic anecdotes and examples, the big picture sometimes gets lost in the noise. To that end, it might be useful to lift our sights to some of the broader indices of circularity, to guide the design of targeted and effective procurement processes and practices.

What would it look like?

• A whole of economy paradigm shift, not just one or two manufacturers or suppliers changing their product and practices.
• Products are better designed to be disassembled and re-generated.
• Goods and services must no longer be reliant upon single use of finite resources either in the product itself, the method of production, or the delivery of the product to the consumer.

Consumer voice and expectations

• A concerted, albeit gradual in some sectors, move from the throw-away thinking of dig it up, build it, use it and bury it.
• Consumers are expected, and assisted, to take an active role in the return of used products.
• A change in perspective away from ownership of a product, and more toward use of a product or service as we are already seeing in the rapidly expanding share economy.
• Downward pressure on pricing associated with a different model of business more aligned with their expectations of quality, utility and re-use.

Government’s role

Government is in fact uniquely placed to drive this paradigm shift.

If we really want to flex our public sector muscle in driving this change, however, it cannot be through leveraging spend alone.

Governments also must bring to bear their regulation capability, as well as their industry development and coordination capacity.

Regulation has a significant role to play in letting the private sector understand what rules we want to play by, and what characteristics the goods and services they provide must have. A regulatory environment in which compliance is the most efficient practice will take time to develop so as to avoid unhelpful price spikes to consumers, but in concert with other government and industry initiatives, it is achievable and desirable.

In many jurisdictions around the world, Governments are encouraging circular design principles by requiring suppliers to consider factors such as product durability, reparability, and recyclability during the design phase.  They also incentivise innovation in circular economy solutions by supporting research and development, providing grants or funding, and collaborating with industry stakeholders.

So we could imagine a model that supports that work, and further encourages re-use by design, and extended life-cycle utility, perhaps even with an obligation on the supplier or manufacturer to ‘take back’ the product at the end of its initial (or first-order) economic life.

Price signalling such as waste levies and other taxation levers might be engaged to encourage efficient re-use of components, which in turn would provide incentive for better design.

The tax revenues could then be hypothecated to offset some of the costs associated with incubation and direct support of industry players engaged in research and application of new technology, in design, and in the production and recovery sectors.

The contribution that public sector procurement can make to this paradigm shift.

As we learned through the discussions at a recent Australasian Procurement and Construction Council (APCC) webinar, some governments around the world have established specific goals and targets for sustainable procurement that prioritise circular economy principles. This includes procuring goods and services with longer lifespans, promoting the use of recycled materials, and favouring products designed for easy repair, reuse, and recycling.

These criteria, where appropriately built into tendering processes, can reward suppliers offering products or services with recycled content, extended product warranties, take-back schemes, or those demonstrating environmentally responsible production and disposal practices. Indeed, we are already seeing some of that play out in the use of more sustainable materials and practices in some of our infrastructure builds.

For example, as reported in the online Infrastructure Magazine, there was some terrific work underway in Victoria around the re-use and recycling of construction clothing and PPE.

Major Road Projects Victoria’s (MRPV) Pound Road West Upgrade team joined forces with Victorian company UPPAREL to recycle used work clothes and PPE that would normally end up in landfill.  Through a partnership between MRPV, its construction partner Seymour Whyte and UPPAREL, project workers are encouraged to hand in workwear and PPE they no longer use so UPPAREL can repurpose 100 percent of the recoverable materials, with nothing sent to landfill.

An industry shift

The MRPV recycling initiative builds on the Victorian Government’s ecologiQ program, which is integrating recycled and reused content across Victoria’s $100 billion Big Build initiative.

One driving force behind this change is the Victorian Government’s Recycled First Policy, which came into effect in March 2020. Under the policy, all tenderers on Victorian major transport projects are required to demonstrate, within their bid, how they will optimise the use of recycled and reused materials at the levels allowed under current standards and specifications.

The Recycled First Policy allows for continuous improvements to transport standards, specifications, research and development, helps create new markets and develop greener, more sustainable transport infrastructure outcomes.

Supported by ecologiQ, the policy has had a powerful impact resulting in commitments to use more than 3.3 million tonnes of recycled and reused materials.  Over 2.4 million tonnes are already incorporated into Victorian transport infrastructure construction.

So all across the world, we are seeing that Governments are raising awareness about the benefits of the circular economy among public procurement professionals and providing training on circular procurement practices.

Public Sector Call to Action

Public sector procurement in Australasia has an enormous challenge ahead if it is to realise its potential to help shift our linear economy towards better circularity.

We all know that, as a consumer in their own right, through their spend Governments at all levels can influence investment decisions and provide incentive for private sector actors to change behaviour, business models and product and service offerings.

Opportunity abounds for aggregation of public sector demand on critical products and services. The combined buying power of the public sector of certain goods and services is enough to drive, or a least influence, change.

But it is not just about the quantity of products and services that we buy.

Unlike our private sector counterparts, public sector procurement is particularly well placed to coordinate its activities. The APCC, for example, is primarily about such coordination, cooperation, and collaboration.

Government is uniquely placed to move the dial in encouraging desired behaviour through the adoption of procurement practices that provide the right incentives for that change, and that harness and direct the enterprise and innovation that abounds within the non-government sectors towards new ways of doing things.

The collaboration and strategic partnering that is essential to the establishment of value chains within a circular economy can be fostered, to a large extent, by public sector procurement practices.  Facilitating market research, for example, can lead to businesses developing an understanding of how they can work together to deliver on the circularity that we want.  Open dialogue in those forums is a critical step in rising the tide of understanding across industry, and also provides opportunities for collaboration and mutually beneficial arrangements to be identified that otherwise might not happen as quickly, or at all.

How we go out for goods and services is important, but so too is how we define what it is that we are looking for.

If we want to make optimal use of knowledge and experience of the market and create opportunity for innovation, for example, we can introduce more functional specifications.

This means describing the use and purpose of a product or service, or the intended resultant outcome.  To use functional specifications, you need to describe the need of your client, being ‘a solution for an issue’. The tenderer in response describes how the result will be achieved.

The question of use versus ownership, for example. The tender might usefully seek responses that address whether there may be a better way to encourage extraction of the optimal use of a product, perhaps by buying a service rather than the product itself?

Is that all that far from some of the principles with which we are already engaged such as sweating infrastructure assets, and procuring for outcomes? Perhaps salient lessons might be learned from the current mushrooming of elements of the share economy such as car share, community tool libraries and the like?

You will need to create a decision-making framework based on more factors, some of which are likely to be more qualitative than quantitative, but even these must still be measurable.

Awarding functional tenders might take more time because it necessitates careful curating of approaches to market, from industry engagement right through to tender documentation, and more analysis and judgement in assessing statements from tenderers according to your functional needs instead of simply counting and rewarding technical specifications.

An expert procurement professional with a good understanding of market maturity across the relevant sector can guide the balance of functional and technical specifications that end up in any material put to the market.

Take-away message

Public sector procurement cannot provide the silver bullet to all ESG concerns of Government, nor can it drive the whole of economy shift in thinking from linear to circular. But Government and industry are gradually coming to recognise its role as a catalyst for change. Rather than being thought of as the only tool in the public sector toolkit, however, it should be used in conjunction with other tools to foster the right environment for the development and success of a circular economy.