When preparing the tender, it is important to give some thought to the revenue models of the various parties involved in the process. When financial incentives promote circular performance for all parties, realising circular ambitions becomes easier.
In addition, once the contract is awarded, the made agreements must be set out in a contract. That contract confirms the relationship that you started in the procurement process. Take trust and cooperation as a starting point in this phase too. What do you need to agree to safeguard the functionality of the supplied products and to accomplish the circular performance?
Circular business and revenue models are often mentioned terms. A business model broadly outlines how a business creates, delivers and retains value. A revenue model is part of this: it provides insight into how a business generates (financial) value by mapping revenues and costs (source: KPMG, KvdL and Copper8: Circulaire Verdienmodellen).
In a circular revenue model, the supplier remains (partly) responsible for its product. This also creates a financial incentive to design and produce products for durability, easy adaptability and low maintenance, for example. A circular revenue model thus contributes to the transition to a circular economy.
There are four circular revenue models that are widely used, with examples further developed in a guide for businesses:
From a procurement perspective, beware of specifying a particular (circular) revenue model. Renting or leasing a product does not immediately make it circular as that depends on what actually happens to the product once it has been returned. It is also important to remember that public organisations can borrow money more cost effectively than private parties. Therefore, a model that requires a private party to do some kind of pre-finance, e.g. with rental or pay per use, can be more expensive for a public organisation in the long term than a regular purchase of the product with the option of returning the product at the end of its service life.
To safeguard circular performance, it can help to include KPIs (key performance indicators) in the contract. With these, you can agree on a growth model, where the supplier has an incentive to introduce improvements during the contract term. Examples of KPIs include the environmental impact of material production, the quantity of recycled content or the quantity of reused versus newly delivered products during a contract term.
Beware of perverse incentives, such as two different KPIs that work against one another. An example would be a guarantee of a maintenance-free period (during which the product must function) and reusing existing products (which may require more maintenance).
When establishing KPIs, it is also possible to link a reward structure to the accomplishment of the KPIs. Here, there are several possibilities:
Creating a long-term contract shows confidence – you want to commit to working with the supplier for a longer period of time. A long-term contract also allows the supplier to make investments with a longer payback period, such as investments in quality. These often cover the circular performance in a contract.
It is important to realise that, under tendering laws, you are permitted to extend the maximum term of a framework contract (4 years), provided that you can provide justification. Achieving circular performance can be a valid justification. Tenders for office furniture have shown that a maximum term of ten years in an agreement is not unusual. These ten years are made up of different periods, with interim extensions: for example, 4+4+2 or 4+3+3.
Engage with a legal specialist early on in your procurement process. Involve him or her in your ideas and ambitions behind procurement and the principles of collaboration you apply within the procurement process. Then, look together at how to translate this into a short and concise contract based on mutual trust between parties.
The relationship between client and supplier actually begins once the contract has been concluded. The client’s contract manager plays an important role here. Engage the contract manager early on in the procurement process so that he or she also understands the ambitions set in the tender and in the bid made by the market party to achieve them. Ask the contract manager to continue working intensively with the market party even after the contract award, so that the requested ambitions are actually realised in practice. Ensure that you are flexible with arrangements, as it’s not always possible to have oversight of everything at the time of the contract award.
In practice, contract management often gets too little attention from internal clients, and there is no intensive relationship between the client and supplier after the contract award. Tackling contract management professionally allows you to steer it towards circular performance.
Further information about contract management is available on the website of PIANOo.
In addition, once the contract is awarded, the agreements made must be set out in a contract. That contract confirms the relationship that you started in the procurement process. Take trust and cooperation as a starting point in this phase too. What do you need to agree to safeguard the functionality of the supplied products and to accomplish its circular performance?
Circular business and revenue models are often mentioned terms. A business model broadly outlines how a business creates, delivers and retains value. A revenue model is part of this: it provides insight into how a business generates (financial) value by mapping revenues and costs (source: KPMG, KvdL and Copper8: Circulaire Verdienmodellen).
In a circular revenue model, the supplier remains (partly) responsible for its product. This also creates a financial incentive to design and produce products for durability, easy adaptability and low maintenance, for example. A circular revenue model thus contributes to the transition to a circular economy.
There are four circular revenue models that are widely used, with examples further developed in a guide for businesses:
From a procurement perspective, beware of specifying a particular (circular) revenue model. Renting or leasing a product does not immediately make it circular as that depends on what actually happens to the product once it has been returned. It is also important to remember that public organisations can borrow money more cost effectively than private parties. Therefore, a model that requires a private party to do some kind of pre-finance, e.g. with rental or pay per use, can be more expensive for a public organisation in the long term than a regular purchase of the product with the option of returning the product at the end of its service life.
To safeguard circular performance, it can help to include KPIs (key performance indicators) in the contract. With these, you can agree on a growth model, where the supplier has an incentive to introduce improvements during the contract term. Examples of KPIs include the environmental impact of material production, the quantity of recycled content or the quantity of reused versus newly delivered products during a contract term.
Beware of perverse incentives, such as two different KPIs that work against one another. An example would be a guarantee of a maintenance-free period (during which the product must function) and reusing existing products (which may require more maintenance).
When establishing KPIs, it is also possible to link a reward structure to the accomplishment of the KPIs. Here, there are several possibilities:
Concluding a long-term contract shows confidence – you want to commit to working with the supplier for a longer period of time. A long-term contract also allows the supplier to make investments with a longer payback period, such as investments in quality. These often cover the circular performance in a contract.
It is important to realise that, under tendering laws, you are permitted to extend the maximum term of a framework contract (4 years), provided that you can provide justification. Achieving circular performance can be a valid justification. Tenders for office furniture have shown that a maximum term of ten years in an agreement is not unusual. These ten years are made up of different periods, with interim extensions: for example, 4+4+2 or 4+3+3.
Engage a legal specialist early on in your procurement process. Involve him or her in your ideas and ambitions behind procurement and the principles of collaboration you apply within the procurement process. Then, look together at how to translate this into a short and concise contract based on mutual trust between parties.
The relationship between client and supplier actually begins once the contract has been concluded. The client’s contract manager plays an important role here. Engage the contract manager early on in the procurement process, so that he or she also understands the ambitions set in the request and in the bid made by the market party to achieve them. Ask the contract manager to continue working intensively with the market party even after the contract award, so that the requested ambitions are actually realised in practice. Ensure that you are flexible with arrangements, as it’s not always possible to have oversight of everything at the time of the contract award.
In practice, contract management often gets too little attention from internal clients, and there is no intensive relationship between the client and supplier after contract award. Tackling contract management professionally allows you to steer it towards circular performance.
Further information about contract management is available on the website of PIANOo.
To achieve a successful circular procurement process, it is important that the ambitions of collaborating parties are consistent. This starts with clearly formulating your own ambition for the specific procurement process. This includes establishing a specific need – what are you actually looking for? Reasoning from an organisation’s deeper needs creates more opportunities for circular solutions. As an example – do you need new office chairs or good office chairs (which don’t necessarily have to be new), or even something different entirely, such as good workstations? Do you need a number of square metres per employee, or a healthy working environment?
Achieving high circular economy performance starts with setting a clear ambition for your procurement process. In doing so, build on your organisation’s ambition and policy, and specify it to the product group you will purchase. For example, are you committed to reducing resource consumption, do you want to maximise the value of your residual streams, or both?
CircularIQ has developed a model to support you in this. This model – summarised in the figure below – provides five possible circular objectives for procurement processes (A to E). By choosing one or several objectives, different strategies (example: A1 to A5) will then be possible. Choose an objective and strategy that fits with the product group you want to procure. Based on these objectives, it is then possible to measure the impact of your procurement after the contract award.
Many procurement requests are specified in relatively technically terms, with the client defining the specifications of the products it wants to be supplied. With a functional request, you are marketing a need, rather than a solution. A more functional request can contribute to a more circular solution in three ways:
Two examples:
The extent to which a request can be functionally specified also depends on the maturity of the market (in relation to circularity) and the complexity of the product group:
Many industries are currently working on the transition to a circular economy. An ever increasing number of market parties have some initial experience and have already made a start. Ever more guiding strategies are being drawn up by central government, giving direction to help make a particular category more circular. Consider the Towards circular office design strategy, for example, or the Towards a circular catering category strategy.
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