How Governments Can Supercharge Economic Development Through Infrastructure Spending

Tim Runge, Partner

On April 30th Kevin Carmichael, Business Columnist for Canada’s National Post, wrote that “…restarting the clock (on the economy) will likely require a second wave of spending that absolutely will be intended as fiscal stimulus.” Previously, in the Globe & Mail, former chief economist at CIBC World Markets, Jeff Rubin, wrote that post-Covid-19, “Nothing of our world is more vulnerable than globalization itself, which has been under attack in recent years, particularly by protectionist policies of U.S. President Donald Trump’s administration.”

The Big Ideas

There are two big ideas here: the first, enacting Keynesian economic theory that governments need to prime the pump with big projects. The second, because of the way countries will begin to religiously guard against their local supply chains, governments must ensure that the benefits stay local. They will need to play the same “game” their competitor nations play. Comparative advantage theory espoused by Ricardo is, for all intents and purposes, no longer valid, at least for the immediate future. That notion has been under attack by Trump well before he became president.


Supercharging Infrastructure Spending?

One way to supercharge this stimulus is to re-examine the way large infrastructure projects are evaluated. Companies that bid on public infrastructure need to demonstrate why their bids are better than their competitors’. Unfortunately the current evaluation system usually puts them in a race to the bottom whereby the bid that is the lowest cost compliant one wins; creativity outside these parameters is of little value.  Governments should expand the check-list used during an evaluation in a way that measures a bid’s total value to society. Governments can utilise the best of the private sector’s knowledge and resources to not only provide for future infrastructure requirements but to also create additional value in the form of badly needed public goods and services.

Community benefits agreements are one such way that governments can ensure that benefits stay local. Many governments have been loath to develop legislation enacting such requirements, believing they add extra complications for developers and therefore costs. There is evidence that these claims are unfounded.


How about those Scottish!

Pilot projects by Scottish public bodies in 2006 emphasized targeted recruitment and training, and social procurement. A 2008 report, published by the Scottish government, outlined a method for including Community Benefits Agreement (CBA) clauses in public contracts. Hosting the 2014 Commonwealth Games in Glasgow was one of the key projects that encouraged public authorities to implement community benefits clauses. Their success has resulted in CBAs becoming standard in the public sector.

The Procurement Reform Act from 2014 in Scotland applies to the awarding of public contracts and requires that community benefits be considered as part of all procurements for all projects of at least £4,000,000. The Act came into force in the spring of 2016 but is considered far behind the state of actual practice. Community Enterprise in Scotland, a social enterprise support agency, claims that community benefits are so well accepted that “the question is no longer whether to have community benefits clauses, but how.”

Community benefits clauses in Scotland have focused primarily on workforce training, and only secondarily on local supplier or social enterprise opportunities. We argue the aperture needs to be expanded to enable business to exercise their creative muscle.


Allow Creativity to Open Up Socio-Economic Opportunities 

Businesses want to be able to compete in every way they can and have told us that. A way to compete is to add long-term sustainable socio-economic benefits into bids such as projects that engage local suppliers, support start-ups and entrepreneurs, encourage innovation and SMEs and provide training.  The list goes on. Ideally, bidders should only be limited by their imagination in the ways they can use their global connections to revitalise communities and generate employment opportunities.  But, because governments evaluate bids within very tight parameters, companies cannot score points beyond compliancy with specs and price. Therefore there is little incentive to compete beyond typical requirements. 


It is Not All That New

This method of evaluation already exists in Canada through the Industrial and Technological Benefits policy of the federal government, and most other countries for large defence procurement. Companies bidding on projects are partially evaluated on the “value proposition” they bring in the form of long-term sustainable benefits to key areas of the Canadian economy. Furthermore it is not discriminatory and places all bidders –foreign and local- on the same level playing field.

With purse-strings drawing tight and future budgets uncertain, Canada and other jurisdictions cannot afford to ignore the opportunity to leverage all of the creative powers of the private sector to leverage socio-economic development when spending public dollars. The time has never been better for governments to consider ways to incentivize the private sector to enhance communities in ways never imagined.






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