FAR Council Proposes to Create a New Standard of Contractor Responsibility: Requiring Contractors to Disclose Greenhouse Gas Emissions and Climate-Related Financial Risk
WHAT: The Federal Acquisition Regulatory Council (FAR Council) issued a proposed rule requiring certain contractors to make representations regarding greenhouse gas (GHG) emissions and climate-related financial risk, leveraging existing third-party standards and systems. The proposed rule would implement portions of President Biden’s 2021 Executive Orders 13990, 14008, 14030, and 14057 on the climate crisis and climate-related financial risk. The proposed rule would amend FAR Part 23 and the related contractor representations and certifications clauses to require certain contractors to:
- Complete an inventory of GHG emissions;
- Complete an annual climate disclosure including a climate risk assessment process and any risks identified and make those disclosures available on a publicly-available website; and
- Develop science-based targets for reducing GHG emissions to meet the goals of the Paris Agreement.
Contracting Officers would then review and assess contractors’ representations regarding compliance with these requirements as part of the responsibility determination under revised FAR Part 9.
WHEN: The FAR Council issued the proposed rule on November 14, 2022. Comments on the proposed rule are due by January 13, 2023.
WHO: The proposed rule affects two categories of contractors registered in the System for Award Management (SAM) (although there are some proposed exceptions within these categories):
- “Significant contractors,” which are defined as those that received between $7.5 and $50 million in federal contract obligations in the prior fiscal year; and
- “Major contractors,” which are defined as those that received more than $50 million in federal contract obligations in the prior fiscal year.
Each category has specific representation and disclosure requirements. Specifically, the proposed rule would require “significant” contractors to inventory GHG emissions from sources within the contractors’ control or electricity sources supporting the contractors’ own consumption (Scope 1 and 2 emissions as discussed in OMB Memorandum M-22-06 and defined in the proposed rule), and complete an annual climate disclosure in SAM.gov. In addition to the obligations that apply to “significant” contractors, “major” contractors would also be required to inventory and report GHG emissions at other facilities that result from the contractors’ operations (Scope 3 emissions), publicly report climate emissions through responses to a third-party questionnaire, develop science-based targets for reducing GHG emissions, and have the targets validated by the Science Based Targets Initiative (SBTi). Contractors’ compliance obligations would commence one or two years after enactment of a final rule, depending on the obligation and whether the contractor is considered “significant” or “major.”
Although the responsibility determination and related representations would apply to the offeror bidding on a particular federal government contract, contractors could rely on inventories and disclosures performed by their immediate or highest-level owners, as defined in FAR 52.204-17, for a larger organization that includes the offeror.
WHAT DOES IT MEAN FOR INDUSTRY: This proposed rule would use contracting officer responsibility determinations under FAR Part 9 to create a new element of contractor responsibility – compliance with GHG inventory and climate disclosures – and a prospective contractor covered by the rule would be presumed to be nonresponsible unless the contractor can make certain showings. The proposed rule is expected to impact more than 6,000 federal government contractors, with a total estimated cost of compliance of over $600 million in the first year and over $442 million annually thereafter.