Federal contractors are likely familiar with the numerous rules and policies they must follow to receive a contract award and throughout a contract’s period of performance. The Federal Acquisition Regulation (FAR) regulates the rules for agencies’ procurement of products and services and is managed by the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). In November of 2022, these agencies, or the “FAR Council,” proposed an amendment to the FAR requiring mandatory climate disclosures for federal contractors, such as reporting greenhouse gas (GHG) emissions publicly. However, this proposal was recently withdrawn mid-January.
Current federal contractors may have been aware of this potential rule due to the additional reporting requirements that would have been imposed on contractors and the attention the proposal received after it was released. With the proposal’s recent withdrawal, current contractors and potential GSA MAS offerors won’t have to consider implementing any of the rule’s climate-related reporting practices for now. In this blog, we will further discuss the proposed rule, why it was withdrawn, and the FAR in general.
Breaking Down the Withdrawn Climate Disclosure FAR Amendment
While the proposed mandatory climate disclosures rule is no longer applicable to federal contractors, it’s important to understand the proposed requirements to prepare for any potential environmental-related FAR amendments in the future.
The DoD, GSA, and NASA initiated a proposal for a new FAR clause in response to Executive Order (EO) 14030, which was released in 2021 and detailed strategies to mitigate climate-related financial risk in multiple areas, including federal procurement. The proposed FAR rule, titled “Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk,” would have implemented section 5 (b)(i) of the EO, requiring major and significant federal contractors to publicly disclose GHG emissions and climate-related financial risk information.
Major vs. Significant Federal Contractors
“Major” federal contractors would have been considered contractors exceeding $50 million in annual contracts, while “significant” federal contractors would have been those receiving $7.5 million or more in federal contract obligations, without surpassing $50 million. Both classifications of contractors would be required to report Scope 1 and Scope 2 of GHG emissions, which include contractors’ directly- and indirectly-controlled or owned emissions, respectively.
Major federal contractors would also have to report Scope 3 emissions, meaning value chain emissions, and set science-based reduction targets for GHG emissions. The US Environmental Protection Agency (EPA) identifies Scope 3 emissions as usually accounting for most of an entity’s GHG emissions, which again would have only been documented from major contractors. Contractors’ calculations for their GHG emissions needed to align with the “GHG Protocol Corporate Accounting and Reporting Standard.”
Overall, the goal of this proposed FAR amendment was to increase transparency around federal contractors’ environmental impacts, understand the associated financial risk, and to enhance sustainability efforts in agencies’ procurement of supplies and services.
Why Was the Mandatory Climate Disclosures Rule Withdrawn?
Former President Biden’s EO was released in May of 2021, which featured a request for the FAR Council to implement a new mandatory rule requiring federal contractors to publicly disclose the previously discussed climate-related and GHG information. As a result, FAR released a proposed rule to create a new subpart under FAR Part 23 in November of 2022.
This year, the FAR Council decided to remove the “Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk” rule from consideration due to a limited timeframe for finalizing the proposal during the remainder of the Biden Administration. The update released on the National Archives Federal Register site also cited public commentary regarding the inconsistencies between the proposed and current domestic and international standards for GHGs as an additional reason for withdrawal. The FAR Council mentioned a continued commitment to monitoring options for more uniform standards to be implemented for GHG policies.
Overview of FAR Impacts on Federal Contractors
As discussed, the FAR provides instructions and policies that manage the purchasing and selling processes federal agencies and federal contractors engage in through contracts. Throughout this blog, we discussed a potential amendment to the FAR that eventually fell through; however, this proposed rule demonstrates that the FAR can be updated or modified if proposed changes are approved. Previous successful additions to FAR include updates for small business programs and restrictions on contractors’ usage of specific telecommunications equipment.
In addition, key FAR clauses apply directly to GSA Schedule contracts. For example, FAR Subpart 8.4 provides agency and contractor guidance for the Federal Supply Schedule program and information on ordering processes. It’s important to review the FAR clauses relevant to GSA Schedule contracts so you can remain compliant with the provisions outlined and expected from federal agencies.
Looking Ahead to Other FAR Proposed Rules
Federal contractors don’t have to worry about being compliant with the climate disclosures rule discussed in this blog due to its withdrawal but should remain aware of other current proposed FAR rules, which are available to research on the National Archives Federal Register site. For example, the DoD, GSA, and NASA recently issued a proposed rule to amend multiple parts of the FAR with the goal of increasing small business participation for multiple award contracts (MACs) through new acquisition planning strategies. Now that there is a new administration it’s important now more than ever to keep up with changes related to the federal government.
By following Winvale’s blog and monthly newsletter, you can stay informed on key revisions or additions to the FAR, GSA Schedule updates, and government contracting in general.
