Non-Federal procurement accounts for 85% of all spending by government in Canada (=almost $250 bn). So, trade agreements like CETA necessarily affect the ability of cities and provinces to use procurement strategically (they are required to open up to competition with trading partners over certain $ thresholds). However, that means that local governments do have some leeway to be strategic. Many people are concerned with the restrictions trade agreements like CETA pose on a city's ability to self-determine its socio-economy through government spending. But, first, are we even using the levels of control we have? Part 1 identifies what our leeway is / has long been under WTO and NAFTA and if it's even being used. Part 2 will find out how strategic procurement is (not) being used by Canada and its trading partners.

1. Regions, Municipalities
& the Maximization of A Major Economic Tool
1

2. Procurement’s Impact
 Canada is at the average of OECD countries whose
government procurement accounts for 13% of GDP
(0.13*1.821 trillion = $237 billion)
http://www.oecd.org/gov/ethics/PublicProcurementRev9.pdf, http://www.tradingeconomics.com/canada/gdp
 Others estimate it to be as high as 23% in Canada,
accounting for 21% of all wages
http://www.canadianlabour.ca/action-center/municipality-
matters/procurement
2

3. Non-Federal Governments’ Impact
Canadian nonfederal
governments
account for
about 85% of
all government
spending
3

4. Implications
 Thus, Strategic procurement should be a major tool of
regional and local government:
 To enhance the (non-economic) social and environmental
well-being of a region
 To be used as an economic lever



To maximize jobs,
Stimulate related industries and corollary disposable spending,
Inspire business and investment to stay and build in a region
4

5. The Private Sector Agrees
 An IBM global survey of 300 senior executives —
including 95 chief procurement officers (CPOs) —
demonstrates the rapidly rising importance of
procurement in the enterprise supply chain. According to
64 percent of respondents, enhancing procurement
strategies would generate greater savings for their
companies, while driving future growth and
competitiveness.
Read more: http://www.itworldcanada.com/article/profiting-from-strategic-procurement-2/37451#ixzz2hzkyUoqC
or visit http://www.itworldcanada.com for more Canadian IT News
5

6. But, it’s an under-used tool in
government
The OECD found that :
“Public procurement is still organised as an administrative rather than a strategic function of
government in many countries. The review of progress made in the last four years shows that
OECD countries are behind schedule in five areas:
1.
2.
3.
4.
Procurement is not recognised as a specific profession in a third of OECD countries.
Procurement is not approached as a cycle of measures to ensure efficiency and integrity,
from the design of the project throughout the tender until contract management.
Performance-based monitoring of procurement systems is the exception to the rule.
Risks and opportunity costs are rarely assessed when using procurement as a policy lever
to support socio-economic and environmental objectives.”
Source: OECD (2012), “Progress made in implementing the OECD Recommendation on Enhancing Integrity in Public Procurement: Report to Council”,
www.oecd.org/corruption/fightingcorruptioninthepublicsector/.
6

7. Reality in Canada: Procurement &
Non-Economic Strategies
 Many municipalities have been including these specifications
in their tendering processes, for contract proponents to meet:
 Sustainability*
 Anti-harassment, human rights ethics
 Aboriginal-, minority-, and gender-equality
* “However, despite good intentions, and more than a few years
of effort, actual performance of most programs (as measured in
terms of purchasing products with demonstrably superior
sustainability features) still has a long way to go. Granted, most
programs are still relatively early in their development cycles.”
– The State of Municipal Sustainable Procurement in Canada (2012 Report)
http://blog.reeveconsulting.com/resources/
7

8. Reality in Canada: Procurement &
Economic Strategies
 The Province of Nova Scotia has included an initiative in their procurement
policy, since 2009:
 Economic considerations: e.g., Life Cycle Cost, Fiscal
Responsibility, Support for the Local Economy * (however, there is
no mention of procurement in the NS Auditor General’s 2013
Report)
http://www.gov.ns.ca/tenders/policies-processes/procurement-policy.aspx
 The Province of Ontario’s Auditor General’s Office said that it has not been
directed to examine procurement practice as a Value-for-Money issue that
considers local economic impact of purchasing decisions - Christine Wu,
Assistant to the Auditor General
 The Province of Ontario’s Economic Development, Trade and Employment
Ministry does not include in its reports data from the Procurement
Department of any ministry – Nathaniel D. Aguda, Ph.D., Senior Advisor,
Strategic Policy Branch
8

9. International Trade Agreements
 ITAs generally prohibit municipalities from exercising
strategic procurement:
NAFTA
NAFTA: “The use of measures to improve socioeconomic development (offsets) for
procurements covered by NAFTA is prohibited....offsets means conditions...that encourage
local development ..., requirements of local content, licensing of technology, investment,
counter-trade or similar requirements. https://buyandsell.gc.ca/policy-and-guidelines/supplymanual/section/1/25/5, Article 1006: Prohibition of Offsets
WTO
CETA
“The use of offsets ... are explicitly prohibited in the Agreement. Notwithstanding this,
developing countries may negotiate, at the time of their accession, conditions for the use of
offsets provided these are used only for the qualification to participate in the procurement
process and not as criteria for awarding contracts (Article V).
• Public Urban Transit: “Canada must provide full access and in particular eliminate all
local content requirements for EU operators.”
• Energy: “Canada must provide a significant overall improvement to its coverage, in
particular in Quebec, Ontario and Newfoundland.”
Page 3: http://www.lapresse.ca/html/1633/Document_UE_2.pdf
9

10. Exemptions from ITAs
 Regional and municipal governments are usually allowed to practice strategic
procurement under minimum thresholds stipulated in International Trade
Agreements:
Goods & Services
Construction
WTO, NAFTA
USD $552,000
USD $7,777,000
CETA (threshold requested by
CAD $340,600*
CAD $8,500,000**
Toronto City Council, FCM)
http://www.canadainternational.gc.ca/sell2usgov-vendreaugouvusa/procurement-marches/agreement-accord.aspx?lang=eng,
http://app.toronto.ca/tmmis/viewAgendaItemHistory.do?item=2012.EX16.2
* = Approx. 13% of the City of Toronto’s posted expenditure in Goods and Services, in 2012-3: $16.4 M
** = Approx. 73% of the City of Toronto’s posted expenditure in Construction, in 2012-3: $321 M
https://wx.toronto.ca/inter/pmmd/callawards.nsf/posted+awards?openview
Note: It may be possible that only very large contracts far above these minimums are the ones where impact to
a municipality’s non-economic conditions, or its economy may be measurable and observable.
10

11. The Lowest Price
 Despite some leeway to exercise consideration for local
economic and non-economic impact, many governments
continue to stick to the lowest price standard because of
 Its objectivity
 Its relatively simple calculation or measurability
 Budget constraints
 Consideration of longer-term costs / impact beyond the
term of the current government is not a political priority
11

12. Example of Debate About
Cost-Based Procurement
“...*P+rice *as+ the only defining criteria for contract award - this simply kills local small competitors.
Locals can not produce goods in small quantities and be cheaper than multinational corporations.
My deepest belief is price as the only defining criteria is the worst thing one can do to public
procurement system. Not only [does] it flushes [sic] away small businesses, but also it reduces the
quality and makes public pay more frequently for buying goods, works and services. (If your roads are of
cheap quality - you'll renovate them every year, if your fridge is of cheap quality - you'll buy a new one
every second year, etc.) So in fact, price as the only defining criteria makes the TCO much higher for
public.”
Contributor to LinkedIn discussion Public Procurement Professionals
Chief, Development Projects at International Procurement Group
“Lowest cost is indeed the deciding factor in most procurement systems BUT only after complying with
all other criteria. That principle should not be changed. I do not agree that least cost selection is at the
deterioration of quality unless your specifications are not good and/or not monitored. If 'green' or
'innovative' criteria are introduced in the specifications (e.g. based on life cycle cost, carbon emission,
....) the solution is already available. For large contracts SMEs are indeed often disadvantaged. Also
there however, there are plenty of solutions within the existing rules (slice and packing lots for
instance). Once we start evaluating goods and works as consultancy contracts (Quality and Cost based),
most SMEs will be out once again and costs of public procurement will shoot up as crazy.”
Contributor to LinkedIn discussion in Public Procurement Professionals
Public Procurement Expert
12

13. Threat of Litigation Deters Straying
from Cost-Based Model
Municipal and regional governments tend to avoid
 The expense and threat of litigation* by losing proponents who may challenge a lost bid on the basis of
discrimination and not an objective measure (i.e. favouring local, an environmental consideration--not price
etc.), especially if the contract was above minimum thresholds
 The accusation of collusion with the winning bidder
In a letter to the Federation of Canadian Municipalities, in response to FCM's concerns about CETA and possible
disputes ensuing from it, federal Minister of International Trade, Ed Fast, provided a letter that states:
“[N]othing in any of Canada's [existing] trade agreements can force countries to privatize or deregulate
services. These agreements do, however, require governments at all levels to act in accordance with
certain principles, such as non-discrimination... CETA will not affect the ability of municipalities to use
selection criteria such as quality, price, technical requirements or relevant experience, or to consider social
and environmental factors in the procurement process, so long as these are applied in a nondiscriminatory manner.... [the dispute settlement process would be] gradual [and] there will likely be a
non-binding mediation before the matter is referred to a dispute settlement panel...the EU would not be
able to bring a case against a municipality**.” http://www.toronto.ca/legdocs/mmis/2012/ex/bgrd/backgroundfile-45054.pdf
* Lawsuits from bidding abnormalities, such as the one alleged against the City of Toronto for $228 M in the 2006 Union Station restoration case, are
crippling to fight and/or lose for a municipality http://dcnonl.com/article/20060110200
**However, it is possible that the federal gov’t of Canada may be obliged to bring a case against a Canadian municipality, in order to honour its agreement
with Europe.
13

14. The Advocacy for
Local Considerations
1.
Harvard Business Review and Journal of Urban Economics research show that developing small local
businesses is more effective at creating employment than so-called “smokestack chasing”.
2.
Other benefits linked with increased activity in local small businesses, include greater community
and political participation, smarter growth, greater public health, improved tourism attraction, and a
stronger culture of entrepreneurship.
3.
A 2013 Civic Economics study focused on B.C. retail stores and restaurants found that local
businesses distributed an average of 2.6 times the amount of money locally compared to chains.
4.
Dealing with many smaller companies (which would favour more local) for an area of need, such as IT
or office supplies, ensures against oligopolies, price rigging and restrictive contracts, while
stimulating collaboration or competition among bidding firms. http://www.computerweekly.com/blogs/editorsblog/2013/08/does-it-matter-if-government-b.html
1 Edward Glaeser, William Kerr and Giacomo Ponzetto, “Clusters of Entrepreneurship,” Journal of Urban Economics 67 (2010): 150–168; Edward Glaeser and William Kerr,
“The Secret to Job Growth: Think Small,” Harvard Business Review July-Aug 2010. (Tony Pringle, MBA, Sauder School of Business,
http://www.sauder.ubc.ca/Faculty/Research_Centres/ISIS/Resources/~/media/Files/ISIS/Reports/Social%20Economy%20Reports/The_Power_of_Purchasing__The_Economic_Impacts_of_Local_Procurement.ashx)
2 Troy Blanchard, Charles Tolbert and Charles Mencken, “The Health and Wealth of US Counties: How the Small Business Environment Impacts Alternative Measures of
Development,” Cambridge Journal of Regions Economy and Society 6 (Dec. 2011), doi:10.1093/cjres/rsr034; S. Goetz and A. Rupasingha, “Walmart and Social Capital,”
American Journal of Agricultural Economics 88(5) (Dec. 2006): 1304-1310; C. M. Tolbert, “Minding Our Own Business: Local Retail Establishments and the Future of Southern
Civic Community,” Social Forces 83(4) (2005): 1309-1328; T. A. Lyson, “Big Business and Community Welfare,” American Journal of Economics and Sociology 65 (2006):
1001–1023, doi: 10.1111/j.1536-7150.2006.00489. (Tony Pringle, MBA, Sauder School of Business,
http://www.sauder.ubc.ca/Faculty/Research_Centres/ISIS/Resources/~/media/Files/ISIS/Reports/Social%20Economy%20Reports/The_Power_of_Purchasing__The_Economic_Impacts_of_Local_Procurement.ashx)
3 Civic Economics and CUPE–BC, Independent BC: Small Businesses and the British Columbia Economy(Feb. 2013). (Tony Pringle, MBA, Sauder School of Business,
http://www.sauder.ubc.ca/Faculty/Research_Centres/ISIS/Resources/~/media/Files/ISIS/Reports/Social%20Economy%20Reports/The_Power_of_Purchasing__The_Economic_Impacts_of_Local_Procurement.ashx)
14

15. The Advocacy for
Local Considerations
If a city does not protect local businesses, it is thought that the
Comparative Advantage principle of a competitive market will
eventually favour the stronger business in a given area:
“Canada currently imports much more from the EU than it
exports in both goods and services, and Canadian exports are
weighted towards raw materials. If the relaxation of trade
restrictions amplifies these patterns, then resource producers
stand to gain while it could become more difficult for companies
in advanced goods and service sectors to compete with European
counterparts domestically... The degree to which Canadian
companies will be able to take advantage of these markets is not
certain and should not be taken for granted.” - Joe Pennachetti on
Comparative Advantages in CETA, City of Toronto, City Manager
http://www.toronto.ca/legdocs/mmis/2012/ex/bgrd/backgroundfile-45054.pdf
15

16. Advocacy for Competitive Bidding
(i.e. Opening up to foreign MNEs)
 Economies-of-scale enable multinational enterprises (MNEs) to often
provide competitive products and services at a lower cost.
 MNEs have the budget and R&D capacity to invest in changing their
factories or products to be environmentally sustainable. The scale can
induce industry-wide changes in standards. http://www.rtcc.org/2013/09/12/how-are-multinationalcorporations-tackling-climate-change/
 Altomonte and Resmin (2001) confirmed in a study about Poland and
Western Europe, that MNEs entering Poland created linkages and
“spillover” knowledge among local suppliers, and introduced superior
technology and marketing and management skills, which resulted in higher
productivity and technical efficiency. There was the potential to stimulate
local rivals to a higher rate of innovation and to continue the flow of
foreign investment, but that depended on further and sustained policy
action. http://www.econ.kuleuven.be/licos/publications/dp/dp97.pdf

The OECD recommends policies to prepare for SME-MNE integration:
http://www.oecd.org/daf/inv/mne/encouraginglinkagesbetweensmallandmedium-sizedcompaniesandmultinationalenterprises.htm
16

17. Conclusions
 There is (diminishing) leeway for regions and municipalities (under minimum thresholds in Trade
Agreements) to practice strategic procurement for non-economic and economic objectives.

However, municipalities and regions in Canada have not documented the practice nor effects of strategic
procurement within their allowable thresholds. (Therefore, the further restrictions under new Trade
Agreements pose an added difficulty to a strategy not yet executed.)
 Furthermore, it is possible to set non-economic objectives in the tendering process under
“specifications”, but monitoring their fulfillment is key.


A 2012 report on the State of Municipal Sustainable Procurement in Canada shows that there is a “long way
to go” in being able to show that these specifications have been monitored to match expected performance
or benchmarks.
The OECD reports that monitoring is largely not done in many of the 31 countries.
 According to the Minister of International Trade, Ed Fast, “non-discrimination” is the main point of
compliance that all 3 levels of government should have in procurement under Trade Agreements
(above minimum thresholds).


Yet, there is the perception that the only way to be compliant and avoid litigation is to stick to the objective
cost-based measure in contract tendering.
Losers in cost-based procurement are thought to be local bidders (who don’t have economies of scale),
quality of service and the ability of municipalities to control local economic and non-economic impact.
17

18. Moving Forward
1. Canadian municipalities need to actively take advantage
of and monitor specifications and strategies that are
allowable within their control. Creative solutions such
as slicing formerly larger contracts can be explored.
2. The cost-based calculation of tax-revenue from all the
local jobs created, purchase of goods, services and
property estimated to result from very large bids may
legitimately be factored into the calculation of net costs.
3. In order to champion the local economy and the
competitiveness of local bidders above ITA thresholds
(something inherently good for all 3 levels of taxation),
policies need to come from non-procurement
departments.
18