Fundamentally restructuring the way we acquire goods, government procurement is transforming how we look at the entire product life cycle and what to do with products at their end of life. Reverse logistics and circular economy principles are quickly moving from optional to mandatory requirements in procurement, determining which suppliers are allowed to submit bids. With an anticipated two trillion dollars in economic value to be unlocked and 10 million new jobs by 2050 due largely to circular economy development in India, as well as the dramatic expansion of the plastic credit marketplace from 982 million to 1.67 billion dollars by 2030 (driven by Extended Producer Responsibility mandates), these aren't just far-fetched aspiration-based sustainability outcomes; they are creating different ways of doing procurements today.
Fundamentally restructuring the way we acquire goods, government procurement is transforming how we look at the entire product life cycle and what to do with products at their end of life. Reverse logistics and circular economy principles are quickly moving from optional to mandatory requirements in procurement, determining which suppliers are allowed to submit bids. With an anticipated two trillion dollars in economic value to be unlocked and 10 million new jobs by 2050 due largely to circular economy development in India, as well as the dramatic expansion of the plastic credit marketplace from 982 million to 1.67 billion dollars by 2030 (driven by Extended Producer Responsibility mandates), these aren't just far-fetched aspiration-based sustainability outcomes; they are creating different ways of doing procurements today.
Understanding Circular Economy Principles in Public Procurement
The circular economy signifies a radical transition from a linear extractive model of using resources to a closed-loop system that preserves continual and maximum value of an item (or set of items) through its use and post-use. Therefore, for many governments, the circular economy encompasses a number of key changes in terms of their purchasing processes, including the wording of tender specifications and evaluation of supplier capabilities and obligations post-sale.
Traditional procurement focused on the final specifications for items or packages (what is to be bought), the timing of the delivery of those items or packages, and their technical conformance to the specifications. In most cases, once the buyer reviewed bids by comparing prices and estimates of technical performance, that was essentially the end of the buyer's interest in the purchase from the supplier's perspective. The future disposal impact of the purchased product(s) once they had been used or once any useful life had ended became the problem of someone else, typically the municipality's waste management system or the environment as a whole.
The scope of circular procurement is greatly increased. As an example, the specifications for tenders may include requirements such as the durability of the product, the repairability of the product, the recyclability of the product, and the upgradability of the product. Therefore, the criteria for evaluating tenders will not only weigh the purchase price of products but also consider the lifecycle costs of operating, maintaining, disposing of, or recovering a product at the end of its useful life. The most profound impact of this change is that sellers will be responsible not just for delivering products, but also for taking back products, recycling products, and providing performance guarantees over the entire lifespan of the product.
By implementing recovery and recycling systems, organizations will be able to recover value from waste streams, thereby eliminating the need to consider trash or waste. For example, businesses may take apart end-of-life products to recover residual value from precious metals and will build reverse supply chains to aggregate waste streams in a significant manner. After precious metals have been taken from end-of-life products, they can then be reprocessed into new materials through recycling, upcycling, industrial symbiosis, or cradle-to-cradle processes that do not produce waste or deplete resources.
Suppliers of goods in the marketplace face opportunities and challenges due to circular economy requirements. The challenges include investing a large amount of money in order to develop reverse logistics capabilities (infrastructure, coordination across long supply chains, and operational functions that are not limited to manufacturing and selling) and the potential to establish long-term relationships with customers by providing service-based solutions rather than selling products. Suppliers can differentiate themselves from competitors by developing their own unique capabilities related to circular economy requirements; suppliers will also be able to generate additional streams of revenue as a result of recovering materials that were previously classified as waste.
Extended Producer Responsibility: The Regulatory Foundation
Extended Producer Responsibility (EPR) is the leading means for governments to facilitate the implementation of Circular Economy (CE) in the public procurement process. Producers and brand owners bear the financial and operational burden regarding the end-of-life treatment of products that they introduce into the marketplace, shifting this responsibility away from consumers and governments.
EPR consists of a series of interdependent mechanisms. For instance, registration and authorization are mandatory; producers must have EPR certificates issued by the Central Pollution Control Board via an online portal that demonstrates compliance with appropriate end-of-life collection and recycling plans. Producers must meet annual collection and recycling targets, which are calculated as a function of historical sales volumes and increase as a producer progresses through the compliance process.
Producers must establish take-back systems (i.e., collection infrastructure) for the collection of end-of-life products by their own collection centers, collection arrangements with approved recyclers, directly joining Producer Responsibility Organizations that work together to facilitate collection, or participation in e-waste exchanges that assist in channeling end-of-life products. Producers are also able to use EPR certificates issued to them from approved recyclers by purchasing tradable credits when they provide recycling and collection services to a producer who has exceeded their own recycling and collection obligations.
The 2022 E-Waste Management Rules establish comprehensive EPR frameworks for electronic products. Manufacturers of electrical & electronic products must register with the CPCB's central registry, have an EPR authorization that specifies how manufacturers will collect & recycle their products, meet annual recycling goals for historic sales of 15-30% in the 1st year and up to 70-80% by the end of their compliance period, and purchase EPR certificates from CPCB-approved recyclers. The recycling goals are for a total of 7 categories that include ~100 different types of electronics, including IT and telecom equipment, consumer electronics, and medical devices.
The Battery Waste Management Rules 2022 also require similar EPR responsibilities for all battery manufacturers. Consumer-type portable batteries have recycling rates starting at 50% in the 1st year and achieving up to 90% by the end of their respective 10-year compliance periods, while automotive/industrial batteries must achieve recoveries between 85% and 95% due to their larger impact on the environment. Recycling rate requirements for EV batteries will range between 60% and 95% due to their high material value and their environmental impact. Of the unmet EPR obligations, 60% of those obligations may be carried over until the next compliance cycle; however, all manufacturers must meet the minimum EPR obligation during the compliance cycle or be subject to penalties.
EPR compliance is increasingly being treated by suppliers to the government as a non-negotiable requirement. Procurement departments are increasingly requiring the submission of EPR certificates as a qualifying document for tender submissions. Technical specifications require that all products supplied be manufactured by an EPR-compliant manufacturer. Terms within the contract require that the seller provide end-of-life return services for their product, creating a contractual obligation that reinforces the regulatory requirements.
GeM's Forward Auction and Buyback Mechanisms
The platform provides tools for government buyers so they can get financial benefits for selling their used products on the GeM and, at the same time, make sure that those items are responsibly disposed of in a manner that meets environmental standards. So, while the government's selling obsolete items to entrepreneurs creates business opportunities for suppliers, it also creates an obligation for suppliers to operate as a part of a circular economy.
The forward auction is a tool that allows government buyers who are registered on GeM to sell government property (real estate, scrap, e-waste, equipment, and other surplus) to bidders by competitive bidding. The forward auction differs from the reverse auction used in traditional procurement; in reverse auctions, government buyers request suppliers to submit offers in order to win an opportunity to sell products to the government; in forward auctions, buyers request that the government sell them items; therefore, buyers need to prepare competitive bids to acquire property from the government.
Forward auction listings must include information about the items being auctioned, the reserve price, the terms and conditions of the auction, and the timeframes for conducting the auction. Government buyers can publicly post their auctions before they begin so that registered bidders can participate. To be registered and eligible to bid, potential bidders must pay an earnest deposit of 2% - 5% of the reserve price of the items they intend to bid on; however, once the auction has started, the auction will continue until the highest bidder has made the final bid and has been determined to be the winning bidder upon conclusion of the auction, at which time they will be required to pay the transaction fee of 0.45% of the total value of all sold properties in order to complete their purchase in accordance with the contractual terms and conditions established at the time of the auction.
Regarding e-waste, the vast majority of services will also need to include a full set of service terms. The service provider collecting e-waste must be validly registered as a service provider for Extended Producer Responsibility (EPR) as issued by the Central Pollution Control Board (CPCB) and possess the ability to collect e-waste from all of their different types of end-users within the prescribed timelines. The service provider must transport e-waste securely, in accordance with the guidelines of the State Pollution Control Board, including obtaining the appropriate No Objection Certificates for interstate transport of e-waste. The service provider must also complete recycling or the final disposal of the e-waste by the timelines set out in the Guidelines for Environmentally Sound Management (ESM) of Waste Electronic Products (WEP). The vendor is required to furnish the purchaser with a certificate of proper disposal of e-waste no later than thirty (30) days following receipt of the e-waste to create an audit trail to demonstrate environmental compliance.
The current buyback option at GeM covers more than 37 product categories. The vendor receives a new product quote for the new device being purchased as well as the buyback amount for the device being replaced. For example, when a government department purchases new laptops, the vendor has the ability to quote both the supply cost for the new devices and the buyback value for the old devices. The difference between the two amounts quoted constitutes the effective procurement cost for the Government Department. This process promotes the proper management of the technology over its entire lifecycle, helps reduce the volume of e-waste, and enhances transparency with respect to calculating the residual value of e-waste while continuing to align with circular economy principles by keeping the materials in the productive economy.
Reverse logistics offers suppliers a way to participate in EPR programs and implement reverse logistics systems through these channels. Companies with approved EPR access and processing capabilities are eligible to bid on e-waste through government forward auctions, process the waste at registered recycling centers, obtain EPR certificates from recycled materials, and sell the certificates to manufacturers to assist them in meeting EPR obligations. This all creates revenue in a closed-loop system for the suppliers. Buyers are encouraged to participate in these programs by providing buyback options for their products, effectively lowering the net costs of procurement, and providing assurance that their EPR obligations will be met by returning the product to the supplier.
Reverse Logistics Requirements in Tender Specifications
In addition to platform-level requirements, more and more government contracts are incorporating reverse logistics requirements as part of the technical specifications and contract terms which will fundamentally change what suppliers are responsible for providing to the government.
Collection obligations require that suppliers remove replaced or obsolete equipment at the time of contract fulfilment when the supplier receives replacement or obsolete equipment. Infrastructure tenders for IT hardware installation increasingly require the winning vendor to take back and properly dispose of the replaced legacy system in addition to supplying new products. Furniture procurement contracts require that suppliers properly dispose of old furniture and not leave it up to the purchaser to remove it. This places the operational burden and environmental liability on the suppliers who have the expertise and infrastructure to comply with these requirements.
Transportation requirements require suppliers to arrange for the secure and compliant transportation of the collected waste from the government facility to a processing location that has been approved by the state authorities. For hazardous e-waste, the supplier must obtain the required permits and the No Objection Certificate from the state pollution control board; use approved vehicles and packaging; maintain a complete chain of custody record throughout the transportation process; and accept any liability for any environmental occurrences during transportation. These requirements favor suppliers with established logistics networks over those who are trying to put together ad hoc transportation methods.
The way that we handle e-waste is being increasingly impacted by processing and recycling specifications that help identify acceptable disposal pathways. For instance, a tender may stipulate that e-waste is only to go to recyclers registered with the Central Pollution Control Board (CPCB) and prohibits e-waste from going to the informal sector; that suppliers must provide a certificate proving their e-waste has been recycled within a certain period of time; that the minimum amount of materials recovered from e-waste must be specified and adhered to; and finally, that all recoverable material must not be landfilled or incinerated. These specifications serve to preserve the environment and present entry barriers to suppliers who do not have a recycling partner with whom they can manage their e-waste.
The management of e-waste is additionally complicated by the need for data security. For example, government-owned IT equipment has sensitive data that must be securely destroyed prior to its physical recycling. Tender specifications require that storage media must be low-level formatted prior to being handed over to recyclers, that the destruction of storage devices must occur onsite wherever possible, that if the onsite destruction of storage devices cannot occur, the destruction must be completed within 30 days after cargo arrives at the recycler's facility, and that suppliers must provide a certificate attesting that the data has been securely deleted. To qualify to submit a tender for IT equipment replacements, suppliers must demonstrate a certified capability to sanitize the data contained on storage devices.
The obligation to provide documentation and reports forms an audit trail that confirms compliance. To demonstrate compliance, suppliers need to keep comprehensive records of the volume of product collected by date and location; shipping documentation to show how the products were transported; recycling and waste management certifications from approved processors; and documentation of the credits issued for EPR material recovered. To demonstrate continued compliance, suppliers report either quarterly or annually to buyers, and payment by buyers pursuant to the contract or agreement between the parties may be predicated upon acceptable reporting. The administrative costs required to provide the documentation and reports favor the established suppliers that have formalized record-keeping systems compared with informal operators.
Circular Design Requirements: Beyond End-of-Life Management
Government procurement processes have established advanced tenders that require suppliers of goods to adopt an approach to their products that embeds circular design principles as part of the goods themselves. These expectations fundamentally change what suppliers can provide in terms of products designed for circularity from the start.
The expected durability/longevity of the products being supplied through government procurement processes places an expectation on suppliers to design and construct their products with minimum lifespans exceeding those of traditional marketplace goods. For example, tenders for government-supplied furniture increasingly call for a 15-year minimum useful life, equated to 10 to 15 years of expected useful life in the commercial furniture market. Minimum warranty periods and minimum guaranteed part availability for Information Technology (IT) equipment supplied to the government are another example, with an expectation of a 7-to-10-year warranty period and parts warrantied a minimum of 7 to 10 years. This is to place pressure on suppliers to invest in creating higher-quality products that can be supported over long periods of time.
Repairability requirements expect that products supplied through government procurement processes will be able to be disassembled and repaired using readily available tools, that spare parts are to be made available for specific periods of time from the date of purchase, that the supplier will provide repair manuals to buyers, and that modular designs will allow for the replacement of components only and not the entire product when repairing. These requirements are consistent with newly emerging global Right to Repair frameworks and will push suppliers away from creating obsolescence-based designs towards creating products designed for long-term repairability.
Material compositions governed by recyclability regulations generally have to contain a majority of materials that are readily recyclable. Bid specs for electronics increasingly have restrictions on the use of or completely prohibit hazardous materials, require certain percentages of recycled material to be used in products, require products to be labelled for sorting during recycling, and require certain time frames to completely disassemble products for the purpose of recovering materials (generally within 30 minutes with basic tools). Suppliers who have design-for-recycling expertise will have a greater advantage than those who only consider recyclability after they have completed designs.
Specifications for upgrades, especially in IT and communications equipment, require modular architecture that supports capacity upgrades without complete replacement. In addition, specifications require standardized interfaces so components can be interchanged with one another, backward compatibility to maintain the ability to function when integrating with newer systems, and support for software updates to extend the usefulness of a product after the hardware has become obsolete. These specifications greatly increase the life cycle of products, decrease the number of times they must be procured, and increase their value and the accountability of the supplier for the product.
Economic Incentives: Making Circularity Financially Attractive
Regulatory mandates provide a compliance incentive for organizations; however, an economic incentive is an alternative to creating financial rewards for organizations that wish to adopt circularity and operate beyond what is required by the regulatory compliance threshold. Increasingly, governments are embedding these economic motivations into their procurement process.
Lifecycle cost assessment methodologies represent a shift away from simply determining the lowest purchase price to evaluating the entire lifecycle of a product, including acquisition costs, operating expenses over the useful life of the product, maintenance and repair costs, residual value or end-of-life disposal costs, and quantifying environmental externalities (through carbon pricing or other methods) as part of the lifecycle evaluation. As such, circular products are inherently more favorable in terms of operating costs, longer lifespan, higher residual value, and a better environmental footprint than linear products, even though their purchase prices may be higher than those of linear products.
In addition to the above, there are currently various types of preference scoring mechanisms that provide suppliers of products with additional evaluation points for their circular capabilities. For example, an RFP can allocate 10-15% of the total evaluation points for sustainability criteria (i.e., EPR compliance certification, reverse logistics, use of recycled materials, and environmental management system certification). Preference points awarded for demonstrating sustainable capabilities can overcome 5-10% price disadvantages, thereby making circular products competitive, even when there is a relatively small premium for circular products compared to linear products.
Tradable environmental products will be created in the plastic credit marketing by 2030, when projected tradeables total over $1.67 billion. Suppliers will benefit financially (through monetization) from tradeable environmental products created in the plastic credit market. The recyclers that create surplus EPR certificates in excess of their own obligations will be able to sell the certificates to producers who need them to meet their compliance obligations. Therefore, by processing the waste, recyclers can create additional revenue streams.
In addition, the length of time the suppliers of circular products enter into extended contracts with their customers creates value beyond the transaction itself. There is a trend among government buyers to desire longer-term relationships with suppliers that provide take-back services, maintenance contracts, and upgrade capabilities. The long-term nature of the supplier-buyer relationships provides the supplier with revenue stability from long-term relationships with their customers and with the customer retaining the supplier. Additionally, the long-term relationships result in lower transaction costs for the buyers and ensure a consistent level of circular performance by the suppliers.
Practical Implementation: What Suppliers Must Do Now
For suppliers serious about maintaining government business as circular economy requirements expand, systematic capability building across multiple dimensions is essential.
To begin with, EPR compliance documentation issuance will be necessary prior to starting EPR Compliance Programs for all relevant product categories. In addition, producers or authorized recyclers must register on CPCBs Centralized Portal and submit their EPR Plan, which describes how they plan to collect and recycle these materials to receive an EPR Auth. Certificate. Once EPR producers are issued an EPR Auth. Certificate: They can choose to partner with registered recyclers for processing materials as well as track their annual EPR targets.
Second will be to create reverse logistics and/or partner with others who have the ability or wish to do so. Reverse logistics within the EPR world will include working to establish collection points or partnering with existing collection networks within the geographies in which you sell product, developing secure transportation logistics processes to facilitate the movement of waste materials, contracting with CPCB-registered recyclers for the processing of those materials, and implementing IT systems that allow for tracking the collection and recycling of POs. Partnering with others who have reverse logistics capabilities has become a necessity.
Thirdly, redesign of products based upon the circular economy. Products should be analyzed utilizing the circular principles of durability, repairability, and recyclability, redesigned utilizing materials that have known recyclability pathways, use modular-type designs that allow a product to be repaired or upgraded easily, eliminate or minimize hazardous materials that would hinder a product's ability to be recycled, and demonstrate via documentation of design decisions that establish circular intent. Products with established circular intent create a competitive advantage as EPR specifications tighten.
Next, you must establish a lifecycle cost tracking system for each of your items. This includes gathering cumulative ownership costs for the period you expect a product to be in use. Document auxiliary power consumption or efficiency during operation. Include all maintenance cost records, as well as OEM part prices. Determine end-of-life value according to the material recovered from production. Create a comparison showing the value of multiple uses of the product as compared to the purchase price of a single reuse/purchase.
Lastly, build an in-house solution to manage circular business operations. Train employees in your purchasing department to understand EPR regulatory compliance as well as the requirements for conducting business under a circular model. Create ongoing businesses and compliance/legal functions to track ongoing regulatory changes. Build financial models to support your business of evaluating the economics of the circular implementation. Forming strategic partnerships with members of the circular economy, as well as other recycling ecosystem participants, and providing updates for customers on how you are progressing towards a circular operation will help with your overall transformation to this new business model.
The Bottom Line: Circularity as Competitive Necessity
The shift towards a circular economy in governments’ purchasing is a permanent change rather than a short-lived fashion. By 2050, circular options across ten industrial wastes will represent $2 trillion of economic activity, 10 million new jobs, and a 44 percent reduction in greenhouse gas emissions. The scale of the economic and policy forces driving a transition to a circular economy will be momentous.
For suppliers, if they do not invest now in their circular capabilities while they are still a differentiator from their competitors, they will soon be forced to invest and scramble to meet these capabilities as they will become a requirement for participation in the market. India’s pursuit of its net-zero and sustainable development targets will accelerate the pace at which voluntary preferences transition into mandatory requirements.
EPR laws and requirements in Canada have already mandated that all electronics and connecting batteries have reverse logistics in place. Similar EPR laws are anticipated to follow that apply to packaging and bags, synthetic fibers, and materials in buildings and construction as the requirements evolve. Additionally, GeM’s forward auction and buyback processes are current operating functions that support the exchange of circular products between suppliers and buyers. Suppliers just need to take advantage of them.
Procurement personnel will continue to get stronger by having increased confidence to evaluate the total cost of ownership and to require recycled content standards for circular design specifications in procurement tender documents. There are also many rapidly developing technologies available for the assessment of circular attributes, such as digital product passports, material traceability systems, and standardized lifecycle impact assessments.
The economic incentives associated with circularity are very positive due to increased material costs, higher landfill costs, and carbon pricing mechanisms that reward reduced emissions. Therefore, circular products are becoming more economically preferable than linear products, both from lifecycle cost perspectives and sustainability perspectives, even without regulations.
Take the steps now to build circular capabilities: ensure EPR compliance, establish reverse logistics partnerships, redesign products for the circular economy, develop lifecycle cost documentation, and build organizational competencies. The government procurement market is worth Rs 13.60 trillion, just on GeM, and increasingly, it will be suppliers with circular economy business models instead of those with traditional linear business models who will dominate the future of this rapidly changing market.
