Increasingly, governments at all levels are incorporating social goals into their procurement plans.
One of the latest is the City of Winnipeg, which recently approved a Sustainable Procurement Action Plan.
Importantly, this plan includes a commitment to “ensuring that the procurement process is fair, open and transparent.”
This is positive news for the city.
Research conducted by Cardus, a public policy think-tank, has shown that open competition for government procurement is crucial to getting good value for taxpayers.
In an era of infrastructure deficits and rising interest rates that will put pressure on all governments’ budgets, it is more important than ever for governments to maximize value in spending taxpayers’ money. The City of Winnipeg deserves credit for its long-term vision and commitment to open competition.
It will take a lot more than that though to make sure that social procurement is a success. The city’s plan calls for the use of Community Benefit Agreements (CBAs) in achieving its social goals, particularly in providing greater training and employment opportunity for individuals from historically disadvantaged groups.
This is a laudable goal, but success depends on how the CBAs are implemented.
A recent Cardus research report demonstrates how CBAs can lead to significant cost overruns for infrastructure projects. Ultimately, public capital budgets bear the brunt of this. It is possible to minimize those costs, but governments first need to understand how they arise.
There are increased project management costs.
Businesses will have to expand their human resources departments to identify, recruit and train new employees that may not have an existing connection to the labour market.
These costs will eventually fall on government budgets as companies adjust their bids to reflect the new reality.
CBAs can also inadvertently lead to fewer companies bidding on tenders.
The reality is that the CBAs add an administrative burden on companies. This is especially hard for smaller construction operations to absorb.
As a result, they could be less likely to bid on projects with these requirements. This runs counter to another goal of social procurement: to leverage public spending to support smaller, local companies. And fewer bidders also means less competition, which means taxpayers might not get the best possible price.
The good news is that governments can take steps, if not to eliminate the extra costs associated with CBAs, then at least to reduce them.
Our research shows that collaboration – early and often – between government and the private sector is key.
An early understanding of the requirements of a CBA will help companies plan their approach to the recruitment and training of workers.
Governments should not download all responsibility of the CBA onto the contractor. They should instead see themselves as partners with the private sector in accomplishing the goals of the CBA.
The City of London, Ont. for example, provides a “contractor handbook” that includes a list of social enterprises and community agencies that can assist with recruitment of workers from targeted groups. They also provide a cash allowance to help defray some of the costs associated with implementing the CBA.
These are examples of ways governments can ensure businesses have the support they need to fulfill the social procurement requirements.
There is also a project size below which CBAs don’t make sense. Governments developing a social procurement strategy should establish a threshold for the consideration of a CBA. This will give the smaller companies that are less able to absorb the administrative costs of CBAs the opportunity to bid on the smaller contracts.
These are just some of the issues that civil servants have to ponder when they are considering whether to implement a CBA.
Cardus has developed a much more comprehensive checklist for governments involved in CBAs that addresses a number of other issues related to supplier diversity, workforce diversity, project management and measurement of results.
Our research shows the costs of CBAs can be minimized if governments and the private sector work together and follow certain best practices.
The City of Winnipeg is off to a good start on this with a commitment to open competition. If it can combine fair and open competition with social procurement best practices, then it could be a model for other municipalities.
Renze Nauta is work and economics program director at Cardus, a public policy think-tank. Send comments or Industry Perspectives Op-Ed column ideas to editor@dailycommercialnews.com.
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