Alice's Adventure in State Statute: An Analysis of North Carolina’s Environmental Procurement Authorization

By Grace Edinger, Senior Manager of the Restoration Economy Center 
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North Carolina’s Division of Mitigation Services is often looked at as the progenitor of environmental Pay for Success in the United States. Their in lieu fee program (detailed case study found here) has been using outcomes-based contracts for decades. 

While we sing the praises of this example of government entrepreneurship and innovation, I aimed to learn about how this specific program’s procurement was authorized, and if the rest of the state could do so as well. Would legislative action be required to allow other divisions of the state to issue similar contracts? Could I point other state agencies from across the country in NC’s direction to learn from this approach and adopt similar initiatives?

I thought these questions would be fairly straightforward to answer; however, I quickly found myself akin to Alice wandering through Wonderland, unsure what route to take. 

Tumble down the rabbit hole that is NC state procurement with me. Things get “curiouser and curiouser,” as Alice says.  

To set the stage, NC state agencies are broken up into subunits called “Divisions”, like the Division of Mitigation Services, which is a subunit of the Department of Environmental Quality. These Divisions are governed by various Commissions. For general reference, here is the legislation that established the Division of Mitigation Services [beginning at § 143-214.8], as well as the establishment of the Environmental Management Commission, which oversees this particular Division [ § 143B-282, § 143-354].

There is brief mention of procurement within the establishing statute language of the Division of Mitigation Services itself [§ 143-214.11]. It states: 

(i) The Division of Mitigation Services shall exercise its authority to provide for compensatory mitigation under the authority granted by this section to use mitigation procurement programs in the following order of preference: 

(1) Full delivery/bank credit purchase program. – The Division of Mitigation Services shall first seek to meet compensatory mitigation procurement requirements through the Division’s full delivery program or by the purchase of credits from a private compensatory mitigation bank. 

The “Full delivery/bank credit purchase” is the innovation in procurement that interests me. This means that the Division of Mitigation Services can purchase environmental outcomes, outsourcing the work and shifting the risk onto the private sector. Full delivery utilizes a Pay for Success contracting approach whereby the government buys environmental outcomes for a set price per unit. I’ve written at length about Pay for Success, learn the basics here. 

The statute reads “...through the Division’s full delivery program…” but nowhere does it elaborate on what that entails. Mention of it is exciting, however nowhere can I find contracting requirements, or even language that authorizes the state to issue such full delivery contracts. That being said, it doesn’t say they prohibit it either. It’s clear that the Environmental Management Commission is able to create their own rules. But were they able to take it upon themselves to establish contract requirements and methodology? 

Feeling hopeful, I reviewed the rest of the state’s procurement code and found that subdivisions of the Department of Administration (a separate state agency) may have had a hand in approving procurement rules set by the Environmental Management Commission, but I couldn’t be certain based on this language. 

I move towards the Division of Mitigation Service’s website to see if I can connect these dots. Did the Department of Administration work with the Commission of Environmental Management after these state laws were put in place to determine contracting details? Navigating over to the Enabling Legislation page, I found a few additional resources that outlined more recent legislative changes that have shaped the program since its inception, but not exactly what I needed about the initial procedure taken to establish this Pay for Success approach. 

After roughly 20 hours of researching, I’m left a little unsatisfied. From what I can tell, legislative action isn’t required for other state agencies and divisions within NC to adopt similar procurement rules. Which is a good thing in my book. To be certain though, I’ll need to reach out to state employees to conduct interviews. With more than two decades separating when this program started and the present day, I’m not sure a clean answer to my question will be possible. 

To be clear, I favor the Division of Mitigation Service’s approach and contracting methods. I went chasing the white rabbit to figure out what is needed to proliferate this approach. I write this article, not to condemn this program, but to shed light on how difficult it can be to follow state processes and procedures from what’s publicly accessible. 

This program, like I stated before, is one that is commonly referred to as the progenitor of environmental outcomes-based contracting in the United States. I’d think that one considered a gold standard would have clearer threads to follow so other entities might follow suit. I hope that, by calling out the need for transparent information, state governments across the US will consider documenting and publishing this information for others to learn from and use.

As Lewis Caroll so aptly put it, “It would be so nice if something made sense for a change.”