Integrating Environmental Sustainability into Airport Contracts (2013)

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9 The integration of sustainability conditions into airport con- tracts and the use of performance incentives continue to grow across the industry. Although some airport operators take full advantage of contracts to drive improvements, others tackle environmental sustainability improvements in an informal manner, often not considering the opportunities available through contracting. Even when an environmental sustain- ability improvement can be traced directly to a contract, this report confirmed that the path for adopting environmental sustainability improvements at an airport is driven by several factors. Sometimes conditions for contracts are generated by a top-down, formal process, as is typically the case when conditions are mandated by national, state, or municipal law or when the airport director has set sustainability goals. Other contractual conditions are generated from the ground up, such as those that occur through an opportunity identified by the airport operator’s green team. This study shows that both approaches—top down and ground up—can be successful. POTENTIAL METHODS FOR INCORPORATING ENVIRONMENTAL SUSTAINABILITY PROVISIONS IN AIRPORT CONTRACTS Figure 1 illustrates the available paths for incorporating envi- ronmental sustainability clauses into airport contracts. At a high level, airports leverage laws, permit requirements, and voluntary standards to provide a framework for including comprehensive clauses in contracts. Individual contracts that use government mandated or voluntary umbrella language require a contractor to provide goods and services that meet the standards of that particular government or standards body. The government laws and voluntary standards also serve as informational resources for contractors seeking to comply with the specifications laid out by the airport operators. The scope of government law and standards bodies is con- siderable and includes all potential environmental impacts affecting an airport. Organizational policies usually repre- sent a narrower scope; for example, a sustainable procure- ment policy, yet are often influenced by government laws and de rigueur voluntary standards. This report found that all of these mechanisms, government laws, permit requirements, voluntary standards, and an airport operator’s own policy, are actively employed as conduits for passing on environ- mental sustainability specifications to contractors. Within this framework, a change in the global economy, national politics, top-level commitment from the airport operator, and grassroots support with the airport operator’s staff actively shapes or accelerates the influence of any one of these con- duits in airport contracts. KEY FACTORS AFFECTING SUCCESS OF THE INTEGRATION OF ENVIRONMENTAL PROVISIONS IN AIRPORT CONTRACTS It is important to understand the key incentives that help an airport operator to successfully integrate environmental sustainability into their contracts. The airport operators that were surveyed as part of this study identified the following influences and suggested why they matter in this context. Political, Economic, and Regulatory Pressures Economic incentives and political pressures are major influ- ences for airport operators. A sudden change in the economic or political environment affects how the airport operator, often a city- or county-owned division, is mandated to do business. There are many regulations and permits governing environ- mental impacts; one example is the political pressure to con- serve water across the state of Georgia. During 2006 and 2007, the southeastern United States experienced extreme drought conditions. To address this, water conservation measures were enforced throughout the region. This political direction was the catalyst that compelled the Atlanta Airlines Terminal Cor- poration airport operator at the Hartsfield–Jackson Atlanta International Airport (ATL) to begin a water reduction pro- gram. Specifications for the terminal building and concession- aire faucets were established and specified in lease agreements to reduce water consumption per enplaned passenger from 4 gallons in 2007 to just over 2 gallons in 2011. Airport Management Commitment An airport director, airport board, or other leadership team, that is committed to making their airport more sustainable and communicates this message with staff regularly, can be one of the most powerful forces for airport sustainability. If the sustainability message is reinforced to staff and stake- holders by senior management, it sets a culture for the whole chapter three CURRENT TRENDS IN INCORPORATING ENVIRONMENTAL PROVISIONS INTO AIRPORT CONTRACTS

10 organization and the staff and stakeholders respond accord- ingly by working toward a high-level goal through discrete projects or initiatives. Staff awareness of environmental sus- tainability was recognized as a significant positive factor for airport operators using contracts to drive performance. This is especially true when the onus was placed on the individual to be aware of the airport operator’s sustainability goals. In airports where purchasing and contracting is decentralized, the opportunities for individuals to contribute to the airport operator’s sustainability goals through their own area of work and activities appeared to be maximized. Project panel members reported that management at their airports, includ- ing Boston Logan International Airport (BOS), Chicago O’Hare International Airport (ORD), Portland International Airport (PDX) Oregon, San Francisco International Airport (SFO), Seattle–Tacoma International Airport (SEA), and Toronto Pearson International Airport (YYZ) are challenged by their respective airport directors to continuously evaluate opportunities to improve the airport’s environmental sustain- ability performance. At Zurich Airport (ZRH), for example, staff across the whole airport organization is designated specific responsibility in relation to delivering against the airport’s environmental goals and objectives set out in its environmental management system (EMS), which is certi- fied to ISO 14001. ISO 14001 is an international standard used to certify that an EMS meets a minimum set of criteria and standards. Teamwork and Communication This synthesis shows that integrating environmental sustain- ability into airport contracts requires a great deal of team- work, communication, negotiation, and determination. Even when airport operators have a procedure in place to guide how environmental sustainability can be integrated into the procurement process, it depends on the individuals involved. Having an aware and multi-talented staff possessing the right set of individuals and communication skills makes a differ- ence in terms of an airport operator’s success in using airport contracts. The environmental team at Seattle–Tacoma International Airport reported that it was active with its concessionaires in helping them meet their environmental sustainability obliga- tions. The environmental team frequently visits its tenants FIGURE 1 Methods and drivers for incorporating environmental sustainability clauses into contracts (Source: Leighfisher 2012).

11 and works closely with them to build a relationship that is mutually beneficial and helps the tenants’ progress toward the airport’s environmental sustainability goals. From these experiences, the environmental team has come to realize that it is not simply a matter of writing policy and specifications into contracts and assuming it will be smoothly and success- fully employed. Before engaging with a contractor, experi- ence and teamwork were cited as the major ingredients to the team’s success in identifying opportunities where environ- mental sustainability clauses could be applied. At San Francisco International Airport, the aviation depart- ment has established a process for ensuring communication across the various technical disciplines when preparing an RFP. This process focuses on partnership and is referred to as the Exceptional Project Outcome (EPO) process. It involves lead- ers of technical disciplines meeting before the RFP is drafted to discuss each department’s wish list and issues for the contract. By discussing these in advance, a consensus can be developed as to what the opportunities and limitations are for the contract. It also provides the rationale to move the environmental sus- tainability agenda forward and reminds the stakeholders of the environmental sustainability goals that could be highlighted in the contract and any associated specification or requirements to include. In sum, the EPO process provides a formal framework to ensure teamwork through multidisciplinary communication, collaboration, and negotiation. Environmental Sustainability Policy An airport operator with an environmental sustainability policy or sustainability vision in place has committed to improving its environmental performance. This commit- ment signifies the effort being made by the airport operators to incorporate opportunities, where possible, throughout its operations to improve environmental performance. A policy and management framework is a good indicator that air- port management is committed and progress is being made. Although using contracts to take advantage of driving envi- ronmental improvements often comes after this step, it is an indicator that the airport operator is actively pursuing envi- ronmental sustainability. Roles and Responsibilities The most commonly cited obstacle for airport operators not integrating environmental sustainability into its contracts is the lack of a clear line of responsibility within the airport operator’s organization. Incorporating environmental sus- tainability successfully requires multiple airport departments to work together and designate ownership throughout the process. The different roles typically involved in integrating environmental sustainability through the entire procurement process [not just into the Request for Qualification (RFQ)] are numerous and include at a minimum, staff with the fol- lowing responsibilities: environmental, purchasing, finance, operations, project management, and legal. Allotting suffi- cient time for this many stakeholders to work together can be difficult. For many airport operators, finding a method for organizing internal collaboration and communication can be the first stumbling block. A proposed solution to this is to formalize a multidisci- plinary technical team to review certain contracts and to have designated procurement technical leads in the various depart- ments. A good example of this is the EPO process described earlier in chapter two. Upfront and Ongoing Resources Background Internet review for this study found that some organizations have recruited sustainable procurement spe- cialists with the sole responsibility for delivering sustainabil- ity through purchases and contracts. That in some industries this is a specialized job demonstrates the substantial time that could be invested in this area. It also illustrates that a specific skill set is favorable for effective outcomes. None of the air- ports surveyed have a dedicated resource to do this job. Typi- cally, this responsibility falls to the environmental department. This reduces its efficiency, because its staff is occupied with on-going responsibilities and duties to ensure the environ- mentally safe and sound operation of an airport. Integrating environmental sustainability language into contracts is a pro- active task over and above regulatory issues and thus is not a priority for many airport operators. To integrate environmen- tal sustainability into contracts requires a number of upfront tasks, including but not limited to, reviewing existing contract language, screening contracts for opportunities to improve the environmental performance of the airport, researching environmental best practices for consideration, calculating the cost and operational implications for environmental require- ments, and drafting environmental specifications and contract language. For an environmental specialist to undertake these tasks for every airport contract and agreement is a significant upfront commitment. There is also an ongoing need to contin- ually update contract language as contracts are renegotiated or retendered. As the airport operations change and new technol- ogy comes into play, environmental sustainability targets are revised; each of these factors needs to be continually tracked and reconsidered as contracts are renewed. A proposed solution to the staff resource constraint is to evaluate the business case of recruiting a sustainable procure- ment specialist on a part-time or full-time basis. Alternatively, professional services consultants can be hired to advise and manage procurement processes and tasks. At Boston’s Logan International Airport, the airport operator retains a consultant to manage the procurement process and undertake on-going contract management and monitoring for its airport janitorial contract. The consultant fee for this is considered to be offset by the operational cost savings over the contract life generated

12 by the proactive contract management and professional con- struction of the contract and associated negotiations. Awareness and Employee Engagement Many airport operators have some or all of their purchases and contracts managed by the airport department with the need for that particular product or service; that is, they do not have a centralized purchasing team. Where this is the case, it is the responsibility of the airport department to man- age all aspects of the procurement process. This includes drafting the RFQ, technical specifications, evaluating bids, and awarding and managing the contract. If that department or individual responsible is not aware of the environmental goals of the airport then it is likely that some opportunities to implement environmental improvements through the con- tract will be missed. Ensuring widespread awareness of the airport’s environmental sustainability goals reduces the like- lihood that opportunities will be missed. Contract Terms Long-term airport contracts and leases are reviewed and retendered on a cyclical basis, from anywhere between 1 and 10 years. For long-term contracts such as a ten-year airline use and lease agreement, there are so many critical business negotiations involved that the opportunity for environmental improvements can be overlooked. If this happens, there is little chance of inserting any environmental clauses or conditions part way through a contract’s life owing to the bureaucracy and potential cost incurred by the airport operator. Contract amendments are generally not considered as an option for the majority of airport operators; therefore, the opportunities to insert environmental requirements into major, long-term contracts are infrequent and challenging. Contract amend- ments must not be overlooked, however, as they can serve as an opportunity to phase in improvements while working with current contractors. Overcoming this challenge requires planning detailed con- versations and negotiations with the stakeholders early in the process so that when the time comes to build additional lan- guage into the contract it is already negotiated and accepted. Perceived Cost Increases, Potential Revenue Losses, and Whole Life Costing Tools In some instances, airport operators are bypassing the oppor- tunity to insert environmental language into contracts because of the belief that environmental sustainability requirements would increase costs. Understanding whether passing require- ments along to concessionaires can result in revenue losses is another potential concern for airport operators. In many cases, these points are misperceptions. Environmental requirements are so widespread for many suppliers and contractors in the current market that according to the airport operators surveyed there is no longer a cost premium involved in most cases. In addition, the market for technological advancements that deliver improved sustainability performance has increased significantly in recent years so that previous misperceptions about high upfront and operating costs for environmentally preferable solutions are no longer true. According to several of the airport operators surveyed, environmental sustainabil- ity has actually been proven to reduce operating costs. That said, the upfront and operational cost implications or whole life costing of environmental conditions in contracts needs to be evaluated on a case-by-case basis; knowing the numbers is extremely powerful for winning over internal chal- lengers and is indispensable when it comes to communicating with the airport operator’s many internal stakeholders about the financial performance of environmental sustainability mea- sures. In some instances, airport operators have employed the skills of a financial analyst to perform a full evaluation of costs. USE OF AIRPORT CONTRACTS TO DRIVE ENVIRONMENTAL SUSTAINABILITY IMPROVEMENTS This study shows that, after years of informal arrangements with suppliers and contractors, airport operators are increas- ingly turning to contract conditions to formalize requirements and ensure environmental sustainability improvements. The public’s expectations have heightened and, in turn, operators need to become more active when overseeing their contrac- tors and suppliers. In addition, airport operators have become much more advanced in their own sustainability policies and plans since environmental sustainability awareness first became a public issue. Literature and interviews showed that the airport operators that have formalized sustainable procurement and integrated environmental language into the majority of their contracts have had a comprehensive airport sustainability program in place for many years. Before airport operators green their sup- ply chain, they must first achieve some environmental stan- dards of their own, thereby developing an in-house culture of environmental sustainability. Among the airports surveyed, the ones that have a formal management framework for sustainability or have an EMS with ISO 14001 certification had a robust process for inte- grating sustainability throughout their operations. To achieve and maintain ISO 14001 certification, airport operators must continually improve their environmental sustainability per- formance, which would naturally include its supply chain and stakeholders. Once ISO 14001 certification has been achieved or a management commitment has been publicly made, there is continued momentum by the organization to maintain this standard and its reputation. For example, staff at Toronto Pearson International Airport is working toward the goal of maintaining ISO 14001 certification by making it

13 a management performance indicator. This promotes aware- ness of the environmental goals throughout the organization and, where this occurs, it is more common that opportunities to improve the sustainability performance of the airport are actually implemented. Airports with widespread integration of environmental sustainability throughout their operations and specifically throughout their procurement process, down to language in their contracts, typically have the following policy and pro- cesses in place: • An established environmental sustainable procurement policy and goals. • An established environmental sustainable procurement procedure. • A database or matrix of environmental impacts by activ- ity and stakeholder. • A record of contract renewal and negotiation dates. • A multi-stakeholder committee to review contract lan- guage and innovative ways of driving sustainability through contracts. • Educational activities for airport employees; for exam- ple, at Incheon International Airport (ICN) airport man- agement education programs are offered six times each year to the individual in charge of purchasing for every department. The Incheon International Airport Corpo- ration (IIAC) also posts guidelines and questions and answers online for all employees. IIAC also actively curates green product information on its intra-network. All products on the network are procured through the Korean Public Procurement Service.