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Public Contract Law Journal

Public Contract Law Journal Vol. 51, No. 3

“Perfect” Is the Enemy of Good: Jumpstarting Environmental Lifecycle Costing in Federal Procurement

Michaela E Thornton


  • Recommends prompt federal adoption of evaluating environmental lifecycle costing (E-LCC) in its future procurement decisions to address climate change by considering the environmental impacts/costs in its federal purchasing decisions.
  • Provides background on the mechanics of environmental lifecycle costing (E-LCC).
  • Recommends FAR changes and establishing an interagency working group dedicated to improving the application of environmental lifecycle costing to federal procurements.
  • Identifies mechanisms the government has for enforcing such environmental/ sustainability requirements.
“Perfect” Is the Enemy of Good: Jumpstarting Environmental Lifecycle Costing in Federal Procurement
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As climate change and its effects rapidly accelerate, private and public actors must redouble efforts to consider the environmental consequences of economic decisions. While recent presidential administrations have indicated, largely through executive orders, a willingness to address climate change by considering environmental costs in federal purchasing decisions, sustainability continues to take a backseat to lower purchase prices in many procurements. One concrete method through which the federal government can better factor environmental costs into procurement decisions is environmental lifecycle costing. This Note provides background on the mechanics of environmental lifecycle costing and discusses key decisions that agencies must make to apply it to federal procurements. This Note then proposes that the FAR Council amend the Federal Acquisition Regulation to require procuring agencies to utilize environmental lifecycle costing in its current form. Simultaneously, the federal executive should establish an interagency working group dedicated to improving the application of environmental lifecycle costing to federal procurement. While trial and error will be necessary to determine the “perfect” way to broadly apply environmental lifecycle costing to government procurement, the federal government can minimize environmental harm by employing this methodology as soon as possible.

I. Introduction

Climate change is no longer a vague uncertainty: it is an imminent threat to security, populations, and environments worldwide. Some degree of planetary change is guaranteed due to global temperature increases already caused by burning coal, oil, and gas. Unless the global community acts now to curb emissions, environmental changes will quickly become drastic and, in many cases, irreversible—changes involving high-stakes floods, fires, droughts, and the total loss of polar ice sheets. The United States has an outsized responsibility to act to curb emissions when compared to other countries: in 2019, the United States was responsible for about seventeen percent of the world’s total energy use, despite being home to only four percent of its population.

Under the Biden administration, the U.S. government has rejoined the Paris Climate Agreement and refocused on public policy seeking to address climate change in various fields. Following guidance set forth in a number of environmentally oriented Executive Orders, the FAR Council has taken to heart the notion that procurement will play an important role in the federal government’s efforts to combat climate change. In its recent Advance Notice of Proposed Rulemaking (ANPR), the Council stated:

One critical lever [in minimizing the risk of climate change] is ensuring that the Federal Government manages climate-related financial risk within its own procurement activity, while also leveraging its scale as the Nation’s largest spender to speed the adoption of key assessment, disclosure, and mitigation measures across the private sector.

The next steps that the FAR Council—and the procurement community generally—take in addressing the looming risks of climate change will have a major impact on the short-term success of, and attitudes toward, addressing climate concerns through economic policy generally. Because the impacts of anthropogenic climate change are creating ever-worsening effects on public health, defense, and global ecosystems, federal agencies cannot wait for “perfect” policy solutions to emerge before attempting climate-conscious procurement reform. Instead, federal agencies should embrace existing sustainable procurement methodologies even as they continue to develop their understanding of these methodologies. One mode of climate-conscious procurement reform based on reasonably well-understood methodologies is environmental lifecycle costing, or E-LCC. Because E-LCC allows agencies to consider environmental costs as dollar values in making purchasing decisions, this powerful cost realism analysis tool should be a required component of agencies’ source selection decisions. By concretely applying existing knowledge of the mechanics of environmental lifecycle costing to federal procurement decisions, progress toward genuine environmental procurement reform can begin immediately.

This Note discusses the basic mechanics of environmental lifecycle costing and how federal agencies might begin to apply its principles most quickly. It seeks to illuminate the mechanics of environmental lifecycle costing as applied within the federal procurement system to a significant enough degree that the FAR Council, and all federal agencies, can begin to embrace this methodology—accepting that initial attempts to do so will be imperfect—while simultaneously improving its application to federal procurement. Part II discusses prior and current attempts to reform the federal procurement process to better incorporate environmental goals and explains why environmental lifecycle costing is a useful tool at the current juncture. Part III breaks down the mechanics of environmental lifecycle costing further, highlighting the key decisions and actions that agencies must take on an individual procurement level to effectively implement environmental lifecycle costing. Part IV proposes actionable changes, including amendments to the FAR and formation of an interagency working group, that can be used to jump-start, advance, and support the use of environmental lifecycle costing in federal procurements.

II. The Federal Executive’s Mounting Commitment to Environmental Procurement Reform

Many Americans, with good reason, are gravely concerned about the accelerating impacts of climate change but may also feel that their individual decisions, like those regarding which products they purchase at the store, are unlikely to make a meaningful or worthwhile impact on climate change. The federal government, however, inarguably has much greater power in this sense than most private individuals. Thanks to its immense procurement spending—for scale, over 586 billion dollars were spent on federal procurement contracts for goods and services in Fiscal Year 2019 alone—the federal government’s decisions as the world’s largest consumer can genuinely impact our collective fight against climate change.

The Biden administration, in recognition of this power, has formally initiated a new attempt to solidify the importance of climate considerations in federal procurement decisions. Although this is not the first time that a President has called for environmental updates to procurement regulations by executive order, the current effort to reform the FAR—including through provisions related to environmental lifecycle costing—is uniquely poised for success.

A. Prior Attempts at Reform

Although prior attempts at comprehensive environmental procurement reform have been well-meaning, these efforts have, for the most part, failed to effect meaningful long-term change to the federal purchasing system. Most notably, a series of executive orders issued by Presidents G.W. Bush, Obama, Trump, and most recently, Biden, have addressed issues of sustainability in procurement.

Environmental considerations in procurement procedures were first addressed in President Bush’s 2007 Executive Order, “Strengthening Federal Environmental, Energy, and Transportation Management,” which instructed federal agencies to create procurement preferences for certain categories of sustainable products, such as those containing recycled content or made from organic materials. In 2009, President Obama built upon the Bush administration’s demonstrated commitment to sustainable procurement when he issued an Executive Order entitled “Federal Leadership in Environmental, Energy, and Economic Performance.” This Order was more success-metric-oriented than Bush’s 2007 Order in that it set numerical targets for agencies related to reduction of specified greenhouse gases. Notably, it instructed agencies to “develop, implement, and annually update . . . integrated Strategic Sustainability Performance Plan[s] that will prioritize agency actions based on lifecycle return on investment,” requiring that, in such Plans, agencies “take into consideration environmental measures as well as economic and social benefits and costs in evaluating projects and activities based on lifecycle return on investment.” This Order led to some successful regulatory change, including amendment of the FAR to designate preferences for bio-based product use by federal service and construction contractors, but it did not lead to any codification of lifecycle cost analysis in federal procurement regulations.

In 2015, before leaving office, President Obama issued another related executive order entitled “Planning for Federal Sustainability in the Next Decade” that was directly aimed at ensuring that federal agencies improve environmental efficiency with respect to their building construction and management, data center energy use, water use, and vehicle fleets “where life-cycle cost-effective.” Like President Obama’s 2009 Executive Order, this Order did not lead directly to codification of lifecycle cost analysis in federal procurement, but it came much closer to doing so. Following the 2015 Order, the FAR Council proposed a rule in 2017 that would create a federal acquisition goal “to promote sustainable acquisition and procurement by ensuring that environmental performance and sustainability factors are included to the maximum extent practicable for all applicable procurements.” Had this language become a provision of the FAR, it is possible that grounds would already exist for disappointed offerors, through the bid protest system, to challenge procurement decisions wherein agencies have failed to account for environmental considerations. Announced after President Obama left office, however, this proposed addition to the FAR was never poised for success. It was withdrawn, along with other sustainable procurement preferences, by President Trump in his 2018 Executive Order ironically titled “Efficient Federal Operations.”

Executive orders, however politically and rhetorically useful, are not, standing alone, effective tools for lasting policy change. The sustainable procurement executive orders issued by Presidents Bush and Obama created a patchwork of preferences that applied to different procurements and carried different definitions, as opposed to a common set of rules, leaving agencies without a holistic framework for how they should treat products or vendors based on environmental considerations. More generally, executive orders are widely recognized as unreliable tools for achieving direct policy goals, particularly on “hot-button” issues on which different administrations may have conflicting stances. Unless their mandates are incorporated into federal statutes or regulations, executive orders remain vulnerable to immediate reversal when presidential administrations change.

President Biden has followed in his predecessors’ footsteps by enacting numerous executive orders seeking to improve sustainability in the federal procurement system, as discussed below. The success of this effort toward concrete, environmentally oriented procurement reform will be largely determined by the ability of the FAR Council to turn the President’s articulated principles into binding procurement regulations. As discussed further in Part III, environmental lifecycle costing is an accessible method through which climate costs can be considered in procurement decisions and is therefore a promising candidate for inclusion in updated procurement regulations.

B. The Current Push for Progress

Since taking office in 2021, President Biden has wasted no time in demonstrating his support for rapid action to mitigate climate change. On the day of his inauguration, President Biden signed an executive order directing all federal agencies to “immediately commence work to confront the climate crisis.” He has passed a comprehensive set of sustainability-oriented executive orders: “Tackling the Climate Crisis at Home and Abroad” on January 27, 2021; “Establishing of the Climate Change Support Office” on May 7, 2021; “Climate-Related Financial Risk” on May 20, 2021; “Strengthening American Leadership in Clean Cars and Trucks” on August 5, 2021; and “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability” on December 8, 2021. The last of these explicitly states that “agencies shall . . . maximiz[e] environmental benefits and cost savings through use of full lifecycle cost methodologies,” a clear indication from the top that environmental lifecycle cost accounting is both valuable and currently possible.

Before this most recent order was signed by President Biden, the FAR Council had already begun the work of turning the previously announced executive orders’ preferences for sustainability into concrete rules. On October 15, 2021, the FAR Council issued an Advance Notice of Proposed Rulemaking (ANPR), seeking comments on how it should go about updating the FAR. The eight questions on which the FAR Council sought comments all pertain, either directly or indirectly, to environmental lifecycle costing. In particular, the second question asks, “What are usable and respected methodologies for measuring the greenhouse gas emissions over the lifecycle of the products procured or leased, or of the services performed?”

Nearly 35,000 comments were received in response to this ANPR, demonstrating the hearty public appetite for discussion of these issues. Although the myriad perspectives shared in these comments cannot be succinctly summarized, many endorse the inclusion of environmental lifecycle costing in the FAR as a concrete step toward ensuring that the federal government considers environmental costs in procurement decisions.

C. Environmental Lifecycle Costing as a Procurement Reform Tool

Environmental lifecycle costing has been identified by Presidents, the FAR Council, and public commentators alike as a particularly promising tool for achieving climate goals in the procurement arena. Put simply, environmental lifecycle costing is a method of cost realism analysis that can be utilized by procuring agencies. It involves factoring the costs of environmental externalities, or costs of environmental harm, associated with the goods or services being procured, into the “price” of the procurement that is used to make purchasing decisions. Environmental lifecycle costing is a natural starting point for climate-conscious procurement reform because it is realistic and, if uniformly conducted, reasonably objective. It allows agencies to put dollar values on the environmental costs associated with particular procurements. With the federal procurement system historically focusing on low price as a key proposal selection criteria, environmental lifecycle costing can help agencies assess objectively just how worthwhile price premiums for more sustainable acquisitions may be.

Environmental lifecycle costing offers more promising outcomes than those generated by sustainable procurement tools used in the past, like eco-labels. Eco-labels are marks or indications indicating products that meet specific environmental performance standards, which may be set by either government agencies, environmental nonprofit groups, or private organizations. While eco-labels, such as those designated by the U.S. Environmental Protection Agency, have had some positive effects in demonstrating federal preferences for sustainable products and remain important tools, they come with serious drawbacks, such as their propensity to incentivize “greenwashing.” Compared to other tools for procurement reform that have been recently proposed or attempted, environmental lifecycle costing presents a more complete and widely applicable tool to bring environmental cost considerations into federal purchasing decisions.

III. The Mechanics of Environmental Lifecycle Costing

As demonstrated by the questions posed by the FAR Council in its recent ANPR, the current hurdle to inclusion of environmental lifecycle costing (E-LCC) in the FAR involves identifying concrete methodologies and principles that can be used to quickly apply E-LCC principles to the procuring activities of federal agencies. The idea of lifecycle cost analysis as a valuable tool for accounting for “hidden” costs is not new; in fact, it has long been recognized as an important business practice in the private sector. E-LCC analysis applies traditional lifecycle cost equations to potential acquisitions, accounting for an additional variable: the societal cost of harm to the environment resulting from a given acquisition.

When a procuring agency attempts to apply E-LCC to a given procurement, it must make two initial decisions that will have a significant impact on the results of any analysis: first, the agency must determine which environmental costs will be accounted for, and, second, the agency must specify the scope by which a given acquisition’s lifecycle will be defined. Once an agency has made these determinations, it must identify an equation by which environmental lifecycle costs will be calculated. Finally, the agency must convey all of this information in a solicitation in a manner that will allow prospective offerors both to provide the procuring agency with the necessary information and to understand how they will be compared to other offerors. Considerations that should be taken into account at the various points in this process are explained below.

A. Traditional and Environmental Lifecycle Costing

Lifecycle cost analysis, whether traditional or environmental in nature, is a tool to enable better informed purchasing decisions. The primary difference between traditional and environmental lifecycle cost analysis is that the latter considers indirect environmental costs alongside other cost factors. Were an agency to conduct traditional lifecycle cost analysis for a procurement, it would look at the various direct costs incurred outside the purchase price—for example, costs of maintenance or disposal. Were an agency to conduct environmental lifecycle cost analysis, on the other hand, it would also factor in the indirect costs to society of the environmental harm associated with the purchase. These costs are not direct costs to the agency because they do not come out of the agency’s pocket directly, either at the time of procurement or at a predictable time in the future (as maintenance costs might). Instead, these indirect costs are identifiable, but not immediately realized, costs to society more generally. In short, environmental lifecycle costing takes “hidden” environmental costs to society of procurements and makes them “visible” as dollar values in agency cost analyses.

Traditional lifecycle cost analysis is the basis on which environmental lifecycle cost analysis is built and is also geared toward making “hidden” costs—albeit only direct ones—visible in purchasing decisions. In traditional lifecycle cost analysis, a procuring agency would seek to determine the “total cost of ownership” or “true cost” of purchasing a given product or service, which represents the total dollar amount that the agency can expect to disburse from its coffers to fund the particular procurement over its lifespan. “Total cost of ownership” is, however, a slight misnomer; rather than precisely accounting for every single future cost associated with an acquisition, a likely impossible task, lifecycle cost analysis instead seeks to identify and place on the scale the largest or most important costs associated with the acquisition.

Various federal agencies already employ traditional lifecycle costing to estimate costs of projects, often defining standard categories of costs to be considered. The Department of Defense, for example, analyzes lifecycle costs by adding together the following:

(1) research and development costs, associated with the concept refinement phase, technology development phase, and the system development and demonstration phase, (2) investment costs, associated with the production and deployment phase, (3) [Operating and Support] costs, associated with the sustainment phase, and (4) disposal costs, occurring after initiation of system phase-out or retirement, possibly including demilitarization, detoxification, or long-term waste storage.

These categories are relatively standard and broad. Beyond categories like these, lifecycle costing can also employ specific, unique categories tailored to individual procurements, though repeatedly structuring such custom analytical frameworks requires additional time and resources of a procuring agency. Once a procuring agency has identified and tabulated costs falling into the desired categories, they enter those costs into a “model,” which may be a simple formula or a complex computer algorithm. Certain cost elements, like purchase price, may be constants that can simply be added into the formula, while other cost elements, particularly those occurring over time, such as labor costs per week, may require scaling to a certain projected time period representing “lifespan” within the formula.

Environmental lifecycle cost analysis incorporates the same principles as its traditional counterpart but additionally incorporates another category of “costs” representing the indirect costs to society of the environmental harm generated by the good or service being procured. These costs are also known as environmental externalities—costs to society not typically accounted for in economic transactions. It is a fundamental tenet of public policy that government regulations are justified where negative externalities exist and that effective economic regulations should aim to “internalize externalities” by recognizing and calculating societal costs proactively. Costs associated with environmental harm are, of course, only one type of social cost or negative externality. While this Note focuses on adding environmental costs into lifecycle cost analyses, traditional lifecycle cost assessment tools could be reasonably modified to include societal costs in a variety of disciplines.

B. Defining Scope

To conduct any cost analysis, a procuring agency must first define the scope of costs that it wishes to consider in that analysis. Opting to conduct environmental lifecycle costing is itself a limitation in the scope of a cost analysis; rather than taking into account the entire universe of societal costs stemming from a procurement, only those costs associated with environmental harm are considered as an additional category of lifecycle costs. The direct and indirect costs to society of environmental harm can arise from a variety of human activities. All such costs, however, share the common feature of not being direct costs to procuring agencies, meaning that they are not represented in traditional dollar values assigned to procurements. Ideally, in selecting indirect environmental costs to include in lifecycle analyses, agencies should seek to identify costs that share other features reflecting the guiding principles of the federal procurement system. To facilitate uniformity and transparency, for example, costs selected for inclusion should be directly correlated to metrics that are objective, verifiable, and reasonably straightforward to estimate. To facilitate comparison of solicitation responses, costs must be tied to the same activities that may be involved in contract performance, such as emitting greenhouse gases or removing old-growth forests. This is a key area in which initial agency attempts at E-LCC may be imperfect, and agencies should keep in mind that trial and error will be necessary to identify the most useful indirect costs to consider in different types of procurements.

The remainder of this Note will limit consideration of the costs accounted for in environmental lifecycle cost analyses to those costs related to greenhouse gas (GHG) emissions, recognizing that the FAR Council should do the same. Greenhouse gas emissions are the primary driver of climate change and so operate in E-LCC equations as a useful proxy for environmental harm more generally. Further, in recognition of the importance of putting a price on environmental harm generated from greenhouse gas emissions, the federal government has already spent significant time and resources researching, valuing, and updating the social costs of three key greenhouse gases: carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). All of the techniques discussed in this Note, however, can be readily applied to account for costs of many different kinds of environmental harm, such as the social cost of one acre of deforestation or the social cost of one ton of plastic deposited in a landfill.

After limiting environmental lifecycle cost analysis to include only certain greenhouse gases, another “scope” must be defined: the portion of the acquisition value chain, or lifecycle, for which emissions will be accounted. Because the federal government acquires such a wide range of goods and services, definitions of scope will likely vary from solicitation to solicitation and therefore should be clearly set forth for offerors by the procuring agency. When defining the scope of E-LCC for products (as opposed to services), the primary scope of analysis would include production; it is the simplest category of emissions to measure across divergent proposals, but nonetheless may contain various subcategories depending on the nature of the product being produced. Additional scopes for product analysis would include material acquisition and pre-processing prior to production; and distribution and storage, use, and disposal after production. For companies that are required to, or choose to, perform emissions reporting conforming to the internationally recognized Greenhouse Gas Protocol, it may be efficient to define the phases of acquisition lifecycle in tandem with Scope 1, 2, and 3 Emissions categories.

C. Assigning Numeric Values

Once the types of costs that will be included in the scope of E-LCC analysis are identified, they must be assigned numeric values to facilitate calculations. Environmental costs to society stemming from emissions are calculated on a “per unit” basis, meaning that agencies conducting E-LCC must ascertain two values to determine the total environmental costs associated with a particular solicitation response. First, the agency must determine the cost of environmental harm per ton of a particular GHG emitted. Second, the agency must determine the number of tons of that GHG that will be emitted over the contemplated contract’s lifespan.

Although calculating the first of these values may sound daunting, this work has, to a certain extent, already been completed for federal agencies in the context of greenhouse gas emissions. If an agency is analyzing the cost of emissions of one of the three key greenhouse gases—carbon dioxide, methane, or nitrous oxide—the federal government supplies the first value. As discussed above, the social costs of these three gases have been determined, and periodically updated, through an interagency process established in 2009. Using widely respected integrated assessment models, the Interagency Working Group on Social Cost of Greenhouse Gases provides estimates for the social costs of emissions of these gases, discounted to net present value at various realistic discount rates. For example, in 2020 dollars, applying an average three percent discount rate, the social cost of emitting one metric ton of CO2 in 2020 is $51. One metric ton is not a particularly high emissions value in the context of many modern activities; for context, on a 3,000-mile round trip passenger flight, an aircraft emits approximately one metric ton of CO2 per passenger. Ascertaining the second value—the number of tons of a particular greenhouse gas emitted over the course of contract performance for a particular solicitation response—is also straightforward for a procuring agency, though more burdensome on prospective offerors. To “fill in” this value, a procuring agency need only ask, in a solicitation document, that each offeror provide a numeric estimate of the metric tons of a particular GHG it expects to emit in performing the solicited contract. It is offerors who must work to supply these estimates and, as discussed in Part IV, face potential False Claims Act liability if they fail to do so with reasonable accuracy. Just as the pre-calculated social costs of greenhouse gases make E-LCC easier for agencies, however, widely accepted emissions calculation methods also make these estimations much simpler for offerors. These methods are well-documented in publications, such as the Greenhouse Gas Protocol Product Life Cycle Accounting and Reporting Standard, and they will be impacted by the scope definition process discussed above.

While ascertaining the necessary values to conduct environmental lifecycle costing is not necessarily easy, it is possible and often straightforward due to existing research. This is a key reason why environmental lifecycle costing, particularly when limited to calculating costs attributed to greenhouse gas emissions, is an expedient way to begin accounting for environmental harm in procurement decisions.

D. Applying Accessible Cost Calculation Models

As part of an E-LCC analysis, after ascertaining for each solicitation response the total amount of a particular greenhouse gas that would be emitted over contract performance and the social cost of that greenhouse gas, an agency next must input these values into a model intended to calculate overall environmental lifecycle cost. This model should ideally represent a traditional lifecycle cost analysis equation, with an additional component representing the social cost of the GHG emissions footprint resulting from contract performance as proposed. Calculating the cost of a GHG emissions footprint is straightforward and essentially involves multiplying the activity emissions data, or the second value discussed in the prior section, by the cost of each unit of emissions. This equation can be made increasingly complicated (and often more accurate) by mathematical inclusion of specific emission drivers, like delayed emissions (which cannot be treated, for pricing purposes, as a single release priced using a single discount rate) or carbon that is stored in bio-based products (which essentially creates a “negative” emission).

Just as the same costs should be considered for each solicitation response to facilitate comparison, the same model should likewise be applied to determine each response’s environmental lifecycle cost. And, just as cost estimation methods are already well-researched and available to federal agencies, well-researched models for performing E-LCC calculations also exist already, examples of which are discussed below. Regardless of the calculation models that agencies select when first adopting E-LCC practices, an interagency process should be introduced to ensure that models in use keep pace with cumulative lessons learned and advances in technology.

The European Union (EU), which began requiring public contracting authorities of member states to utilize E-LCC in acquisitions through a 2014 Public Sector Directive, provides a useful example for how E-LCC models might be developed. The Directive specifies certain criteria for E-LCC analyses, including requiring that methods utilized are fair, objective, and accessible to all interested parties, and that the data utilized for calculations can be “provided with reasonable effort by normally diligent economic operators.” The Directive does not require that contracting authorities of EU Member States use any particular models or tools for their calculations, but instead contemplates that a uniform model may be applied in the future as Member States’ E-LCC practices solidify. As calculation tools are developed and tailored toward specific types of acquisitions, the European Commission shares these tools on its Green Public Procurement web portal. This portal currently houses models, which can be downloaded as digital spreadsheets and easily modified, for acquisitions of computers and monitors, vending machines, imaging equipment, indoor lighting, and outdoor lighting. By publicizing models as they are created, the European Commission successfully makes E-LCC easier for Member States to employ, even as no particular model for conducting E-LCC is legally required and methodologies continue to evolve.

In the United States, the Environmental Protection Agency (EPA) hosts a similarly downloadable procurement-oriented spreadsheet for calculating the total cost of ownership, including environmental costs, for electronics. For vehicle procurements, the Alternative Fuels Data Center of the U.S. Department of Energy (DOE) hosts an online “Vehicle Cost Calculator” that allows users to “calculate the total cost of ownership and emissions for makes and models of most vehicles, including alternative fuel and advanced technology vehicles” with simple inputs—though this tool is geared toward individual consumers. Other useful resources for model development include the International Organization for Standardization’s ISO 14044, “Environmental Management—Life Cycle Assessment—Requirements and Guidelines,” and the British Standards Institution’s PAS 2050 standard, “Specification for the Assessment of the Life Cycle Greenhouse Gas Emissions of Goods and Services,” which are both widely reviewed and utilized for business.

As federal agencies consider the questions outlined above and select models for incorporating E-LCC into procurement decisions, it is important to recognize that this form of cost realism analysis is not without drawbacks. In particular, the scopes of cost consideration, methodologies, and tools selected by agencies will significantly impact the outcomes of E-LCC analyses. This is one reason why the creation of an interagency working group to assess the effectiveness of and update scopes, methodologies, and tools used for E-LCC is so important. In addition, despite the vast array of tools and methodologies available, it remains difficult to accurately measure and price carbon emissions, particularly those that occur over longer periods of time. Nonetheless, progress toward sustainability goals can be achieved using those E-LCC tools and models currently available.

E. Structuring Solicitations

Once an agency has identified the steps by which it intends to conduct environmental lifecycle cost analysis for a particular procurement, it logically follows that the agency must structure the solicitation for that procurement both to collect the necessary information from offerors and to provide offerors with sufficient information to allow them to understand how their proposals will be analyzed. The solicitation language conveying this information should be as clear and detailed as possible and should be crafted to elicit consistent responses from offerors. At least one county government that has applied E-LCC to public procurements has issued guidance indicating that, for procurements where E-LCC will be used, solicitations must include detailed information regarding the product or service being acquired, such as its intended use once acquired, the anticipated “lifespan” of the product acquired where relevant, and conditions of the anticipated operating environment.

It is also fundamental that inclusion of any E-LCC criteria in solicitations should enable fair and rigorous competition among potential offerors so as to both uphold the foundational values of the U.S. procurement system and to ensure that solicitations are conducted in compliance with the Competition in Contracting Act (CICA) of 1984. CICA requires that, absent certain identified circumstances or unless expressly authorized by statute, government contracts be awarded through “full and open competition.” FAR 3.101-1, which encapsulates CICA’s motivating principles, states that “[g]overnment business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none.” The combined effect of these rules is that, assuming that E-LCC procedures are approved or mandated by the FAR, and assuming that a given solicitation contains sufficient information to allow offerors to compete fairly, they will probably be found compliant with CICA and the FAR, particularly given that FAR 23.703(b) requires that agencies “[e]mploy acquisition strategies that . . . realize life-cycle cost savings” in an environmental context.

Given the discrete steps involved in applying E-LCC and the existing research supporting each step, agencies have most, if not all, of the necessary tools required to begin utilizing these techniques to make more sustainable procurement decisions. To jump-start the trial-and-error process and ensure that the benefits of E-LCC are realized sooner rather than later, the FAR should be updated to explicitly require that agencies use E-LCC.

IV. Next Steps for the Federal Procurement Community: Harnessing the Power of Environmental Lifecycle Costing

Updates to the FAR, particularly those incorporating environmental lifecycle costing, are imminent as a result of the recent ANPR issued by the FAR Council. In particular, these updates should focus on FAR Parts 7 and 23, which contain existing environmental acquisition considerations, and FAR Parts 14 and 15, which contain overarching regulations governing the primary modes of procurement, sealed bidding and negotiated procurements. To support regulatory changes applying E-LCC, an interagency group should also be established to continue research about E-LCC in order to formalize the development of pricing and modeling equations, and provide guidance programs and documents. In this way, “imperfect” initial attempts at E-LCC can continue to be improved.

A. Amending the FAR

“Life-cycle cost” is currently defined at FAR 7.101, in the context of FAR Subpart 7.1 only, as “the total cost to the Government of acquiring, operating, supporting, and (if applicable) disposing of the items being acquired.” Subpart 7.1 goes on to require that agency heads or their designees, in conducting procurements, prescribe procedures for “[e]stablishing criteria and thresholds at which . . . life-cycle-cost techniques will be used.” It also provides that, where appropriate, written acquisition plans should discuss cost concepts to be employed, including discussion of “how life-cycle cost will be considered” or, if it was not considered, a discussion of why not.

The first key issue with this section is that “life-cycle cost” is not currently defined to include environmental costs. The second key issue is that the present section leaves to the discretion of the agency head or her designee whether or not to apply or discuss lifecycle costing techniques. To remedy these issues, the FAR Council should first update the definition of “life-cycle cost” in FAR 7.101 to include consideration of environmental costs—for the time being, namely the costs associated with emissions of greenhouse gases. Better yet, this definition, including consideration of environmental costs, could be moved to the definitions section at FAR 2.101 so that “life-cycle cost” could be utilized consistently throughout the FAR to refer to environmentally oriented lifecycle costing. Should the FAR Council wish to differentiate between traditional and environmental lifecycle cost analysis, “environmental life-cycle cost” could simply be added as a separate definition. Additionally, within the existing framework of FAR 7.1, the FAR Council should make it clear that discussion of the use of E-LCC, or a justification for not using E-LCC, is always required when agency heads or their designees submit written acquisition plans.

FAR Part 23, entitled “Environment, Energy and Water Efficiency, Renewable Energy Technologies, Occupational Safety, and Drug-Free Workplace,” contains most of the existing environmentally focused procurement regulations. However, the sections of Part 23 represent a divergent smattering of interests. Most are related to sustainability goals, and many derive their authority from previously enacted executive orders and legislation, but taken together, they are a confusing maze of requirements likely to overwhelm procurement officials and prospective contractors alike. Though not inherently necessary for implementing environmental lifecycle costing requirements, consideration should be given by the FAR Council to consolidating these requirements into a more cohesive set of sustainability rules applicable to all procurements. In doing so, the FAR Council should ensure that environmental lifecycle costing is addressed first among these requirements and framed as mandatory for all agencies. Because this section generally provides environmental guidance cross-referenced by other FAR sections, this would be a good place for the FAR Council to set forth the basic principles for using E-LCC in procurements, such as the requirement that agencies publish the social costs of greenhouse gases and E-LCC calculation models that they intend to utilize in solicitations. To make the requirement that E-LCC be used in all procurements more iron-clad, the FAR Council should include language requiring E-LCC in FAR Parts 14 and 15, addressing sealed bidding and negotiated procurement procedures respectively.

B. Establishing Structure for Continual Improvement

Like any evaluation method based in scientific and mathematical calculations, environmental lifecycle costing techniques are likely to improve as various models are applied, tweaked, and digitized. E-LCC is sufficiently developed to merit inclusion in the FAR today, but to promote constant improvement, the FAR should also directly incorporate an authoritative mechanism by which E-LCC techniques will be updated. The best way to monitor and update E-LCC techniques is likely through an interagency working group.

The federal government has undertaken similar efforts before. As discussed in Part III, the Interagency Working Group on Social Cost of Greenhouse Gases has worked to update modes of calculation and estimates for the social costs of key greenhouse gases since 2009. A parallel group either affiliated with or styled after this group could perform a similar function for E-LCC techniques. Better yet, this group could build upon the work of the existing interagency group called the Federal LCA Commons. While the Federal LCA Commons group has thus far focused on developing computer software for traditional lifecycle cost analysis, it is currently working to develop reference data and tools to add to its repository that will address the concept of Product Environmental Footprints as components of lifecycle cost analysis.

In addition, the Office of Federal Procurement Policy (OFPP) should dedicate resources toward monitoring the success of E-LCC in federal procurement and suggesting further updates to regulations. The OFPP was created within the Office of Management and Budget, pursuant to 41 U.S.C. § 1101, to “(1) provide overall direction of Government-wide procurement policies, regulations, procedures, and forms for executive agencies; and (2) promote economy, efficiency, and effectiveness in the procurement of property and services by the executive branch of the Federal Government.” Previous actions by the OFPP have demonstrated its willingness to issue environmentally oriented procurement guidance. For example, the OFPP promoted the use of environmental costing in OMB Circular A-131 on the subject of “Value Engineering” in 2013. To ensure the success of E-LCC as it is adopted more widely across the federal procurement system, the OFPP should actively encourage and document agencies’ use of existing techniques to promote a “trial and error” method of reforming E-LCC policy and application.

C. Identifying Enforcement Mechanisms

Finally, to ensure that updated rules requiring environmental lifecycle costing are taken seriously, enforcement mechanisms must be considered and, where necessary, leveraged. The key benefits of enforcing E-LCC regulations are twofold. First, E-LCC requires that companies report information on their emissions, which would create a valuable environmental dataset for the government that is more likely to be accurate given that reporting contractors are subject to False Claims Act (FCA) liability. Second, E-LCC can create a ground for bid protests that, when brought, would allow bid protest fora to analyze and opine upon the methods of E-LCC that agencies are using.

Experienced government contractors are likely already familiar with the concept of liability under the False Claims Act, which establishes penalties for contractors who knowingly make false claims, whether explicitly or implicitly, to the government in order to receive payment from the government for goods or services rendered. A suit alleging violation of the FCA can also be brought by a private whistleblower known as a “qui tam relator” on behalf of the government. The purpose of the FCA is to discourage the perpetration of fraud against the federal government through so-called false certifications; it is not intended to police violations of regulations that are conditions of participation or breach of contract claims. FCA jurisprudence requires that, to give rise to a viable FCA claim, the false certification at issue must be material to the government’s decision to pay. As the Supreme Court has observed, the standard for determining whether a misrepresentation is material “is demanding,” and “a misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.”

Because environmental requirements currently set forth in the FAR—such as the requirement stated in FAR 23.103 that federal agencies ensure that ninety-five percent of new contract actions for products and services require environmentally preferable products falling into certain specified categories—operate as conditions of participation, FCA liability is unlikely to attach where a contractor has failed to comply with the requirement. E-LCC, on the other hand, would require that contractors submit, as part of solicitation responses, data indicating the carbon emissions that they reasonably expect to occur as a result of contract performance. Assuming that E-LCC is used as intended, the emissions data reported by contractors will likely be major and go to the essence of the bargain in that the government will directly use it to make cost-related decisions. Consequently, regulations requiring E-LCC, as compared to previous environmental regulations included in the FAR, are more likely to expose contractors to FCA liability, thereby raising the stakes for compliance.

A regulatory requirement that agencies use E-LCC in procurement decisions could also result in bid protests if an agency fails to consider environmental costs in price analyses. Such protests might mirror existing jurisprudence addressing bid protests in the context of agencies’ failure to conduct price realism analyses where solicitations state that such analyses will be conducted. For example, in Valor Healthcare, Inc., the Government Accountability Office (GAO) sustained a protest that the agency had failed to conduct any price realism analysis when it had stated, in the solicitation, that it would do so, given that the analysis likely would have resulted in a different award decision. Similarly, were an agency to indicate, in compliance with a new FAR rule, that it intended to perform environmental lifecycle cost analysis in making its award decision, a disappointed offeror could potentially protest if it appeared that the agency failed to conduct such an analysis.

While the efficacy of these enforcement mechanisms will be determined by the language employed by the FAR Council in upcoming environmental procurement reforms, the FAR Council should take these potentially valuable accountability tools into consideration when crafting environmental lifecycle cost regulations.

V. Conclusion

Environmental lifecycle costing, the basics of which are already well-developed, is a powerful tool for procurement reform. By updating the FAR to require that agencies utilize environmental lifecycle costing in procurement decisions, the FAR Council can ensure that the federal procurement community models how consumers everywhere can take environmental costs into account when making economic decisions. It is unlikely, and potentially impossible, that the United States will be able to identify “perfect” environmental lifecycle costing tools immediately. Using existing methods, tools, and data, however, federal agencies can begin to incorporate environmental lifecycle costing into solicitations, jump-starting the “trial-and-error” process by which effective, uniform environmental lifecycle costing tools can be developed. Rather than delaying as it seeks to identify how the FAR can “perfectly” incorporate environmental lifecycle costing, the federal government should get to work immediately by using environmental lifecycle costing as widely as possible for procurement decisions.