Assessing The Potential For Local Procurement As An Economic Engine

The Centre for Local Prosperity

Year: 2021

An Analysis Of Public Sector Institutional Spending In Atlantic Canada

An institution’s possible role as an economic engine for their local economies has been validated by current success stories in the UK and USA such as the “Preston and Cleveland Models”. Not only can a greater portion of public-sector local spending provide a direct economic stimulus, but spending with locally-owned businesses provides proven higher multiplier effects on local re-spending.

Historically, centralized procurement services focused on cost savings, time efficiency, group or bulk purchasing and aggregating procurement into fewer but larger contracts. Trade agreements, internal policies and complex tendering processes have tended to favour larger non-local suppliers that can bid successfully on larger aggregated contracts. This evolution has made it difficult to find and engage smaller local suppliers.

The names of the five institutions that were studied, as well as their specific spending information, are not detailed herein due to confidentiality. Nevertheless, non-confidential aggregated results are presented for four of the five institutions. Two mid-sized post-secondary educational institutions reported a leakage rate (i.e. spending occurring outside of their province) of 59% and two mid-sized municipalities reported a leakage rate of 25%. A 10% shift to local procurement represented an average of $2.8 million per year for each of the educational institutions and $1.8 million per year for each of the municipalities, representing potential new economic stimulus into their local economies.

There could be a significant economic impact to our regional economies if many educational institutions, municipalities and other public sector anchors within the region adopted a strategy for a small local shift in their procurement practices.

There are a number of types of local suppliers that can serve the needs of an institution. These suppliers are either capable ‘as is’, they may need to scale or upgrade to capacity, or they could cooperate with other similar suppliers to quickly gain needed capacity. It may require a multi-year effort on the part of an institution to build responsive, local supply chains, related infrastructure and
internal mechanisms for tracking their local spending progress.

In a more integrated context, ‘Community Wealth Building’ is a global trend that reorganises local economies so that wealth is not extracted but redirected back into communities through locally productive forms of business. These “generative” businesses are firms in which the wealth created is shared between owners, workers and consumers, allowing wealth to flow to local people and places. An integrated Community Wealth Building strategy includes: utilising public sector procurement to develop local supply chains; increasing flows of investment within local economies by harnessing the wealth that exists; deepening the function of local assets held by anchor institutions; exercising fair employment practices; and growing locally owned enterprises which are more generative for the local economy – in effect locking wealth into place.