How Toronto is using its purchasing power to drive inclusive growth

Toronto’s new Social Procurement Policy aims to harness public spending to raise residents out of poverty. (DayOwl/Shutterstock.com)
TORONTO, Canada — Every year, the city of Toronto spends about CAD 1.8 billion (USD 1.35 billion) on goods and services, from large construction projects to one-off catering contracts. Now, the city wants to harness that procurement power to help raise minorities, aboriginal people, recent immigrants and people with disabilities out of poverty.

Since 1 January, Toronto has been implementing a new Social Procurement Policy. The policy establishes clear guidelines and tools to ensure that businesses owned by members of disadvantaged groups participate in the bidding process for public contracts. It also aims to ensure that businesses contracting with the city hire and train a diverse workforce. Vendors working on large city contracts are encouraged to participate in workforce development programmes with vulnerable groups, such as youth.

Supplier diversity programmes for minorities and women are already well established in the United States. And procurement schemes focusing on social goals are multiplying in other countries, notably in the United Kingdom and Australia. Requirements that large infrastructure or development projects benefit the local community — usually through local hires — also are taking root in these places.

But Canada has been late to adopt similar initiatives, both in the public and private sectors. With its Social Procurement Policy, Toronto not only wants to catch up with other global cities. It’s also playing a leadership role for Canadian public institutions that are interested in channeling their procurement needs to help build more equitable communities, deploying a unique strategy that blends elements of the American and European approaches.

“City Hall is playing a leadership role by championing social procurement as a corporate and operational goal,” says Colette Murphy, executive director of the Atkinson Foundation, which promotes social and economic justice in Ontario. “The city is a pioneer.”

Navigating red tape

Denise Campbell is a director at the city of Toronto’s Social Development, Finance &Administration division, and has been a champion of social procurement for a decade. Her interest was first piqued while working on city-led development projects in low-income neighbourhoods.

As she recalls, community members were asking whether local youth could be employed on public works projects. She tried creating a programme to give them access to these jobs but kept hitting roadblocks. City leaders were concerned about the legal aspects of such a programme and violating trade agreements with local unions. “At the time, 2006, we were risk-averse,” she says. “It seemed risky and complicated, and so administratively there wasn’t an interest in pursuing it.”

Over the next ten years, Campbell kept trying informal approaches to hire and train young people on public construction projects, but she could never turn one-off projects into policy. In 2012, however, she found a new ally in Michael Pacholok, who, as the city’s new Chief Procurement Officer, took over the department in charge of awarding the larger city contracts for goods and services.

Denise Campbell has been a champion of social procurement in Toronto for a decade.

Pacholok was aware the procurement process was too bureaucratic for small- and medium-sized enterprises and was already reflecting on how to incorporate diverse companies into the city’s supply chain. When Denise Campbell’s team approached him to discuss how to leverage city contracts as a way to strengthen economic inclusion, Pacholok saw an opportunity for both divisions to work on common goals. “They had done a pilot project before that was successful,” Pacholok recalls, “so I was intrigued by how this would work.”

At the same time, Toronto was getting ready for the 2015 Pan American Games, the largest sports event ever hosted by the city. The City Council required the Organizing Committee to include a social procurement clause in municipal contracts linked to the Games; this would serve as tangible proof that social procurement could be implemented in spite of administrative constraints and legal concerns.

The culture at City Hall was changing. A growing number of reports were sounding the alarm on a rise in poverty, food insecurity and lack of affordable housing, especially in Toronto’s inner suburban areas. Nineteen percent of residents are now considered low-income, and 27 percent of children live in poverty. In 2014, John Tory was elected mayor and made poverty reduction one of his priorities. In 2015, the city adopted the Toronto Poverty Reduction Strategy, a 20-year, multi-sectoral policy that served as a major rationale to support social procurement.

“It is one of our signature initiatives from the Poverty Reduction Strategy,” explains Campbell, who also headed up development of the anti-poverty policy. “It was important for me to include social procurement in that strategy, just one more thing that reinforces to Council, the vendor community and ourselves that [the strategy] is an important systemic tool if we use it right.”

Creating opportunities

Diverse suppliers cite a number of barriers that prevent them from accessing contracts, both in the private and public sectors. Finding out about requests for proposals in the first place can be difficult. Even harder for these firms, which tend to be small in size, is going through the bidding process and competing with larger, more established firms. On both sides of the procurement process, there’s a mutual lack of knowledge that prevents diverse suppliers from getting into the game.

“There is a perception that there aren’t enough diverse suppliers out there,” says Cassandra Dorrington, president of the Canadian Aboriginal and Minority Supplier Council, or CAMSC. “It isn’t true.”

CAMSC is one of the organizations that partnered with City Hall on the new procurement policy. So did Women’s Business Enterprises (WBE Canada), the Canadian Gay & Lesbian Chamber of Commerce (CGLCC) and the Social Purchasing Project (SPP). The groups help city purchasers identify diverse suppliers, help vendors find diverse subcontractors, and generally help members build capacity to bid for contracts. (A new partnership is being set up with an organization working with people with disabilities.)

Cassandra Dorrington (right) of the Canadian Aboriginal and Minority Supplier Council says the perception that there aren’t diverse suppliers isn’t true. (CAMSC)

These partnerships are one of the ways Toronto’s policy may differ from that of other cities in North America. The city of Chicago, for instance, identifies diverse suppliers through an in-house certification process.

“In the United States, there is a very robust legal framework to target minority-owned suppliers in a way that we can’t do in Canada and in Ontario,” explains Wayne Chu, a policy development officer working with Denise Campbell at City Hall. Chu cites the Province of Ontario’s Human Rights Code, which prevents public and private purchasers from collecting information on a vendor such as race, sexual orientation or disability.

“So the requirements that we have in the programme,” Chu says, “are tailored very specifically to be compliant with our legal obligations.”

Pilot tests

Legal requirements aside, the policy had to be built mostly from the ground up because the team couldn’t find enough detailed examples of existing best practices to be replicated in Toronto.

As Campbell says, “We wanted examples of language for ‘call’ documents. We wanted to understand scoring in competitive processes. We wanted to understand how people are making the business case when facing questions such as, ‘Will this make procurement more expensive for us as a procuring organization?’ Even when we talked to people, those details were very hard to pull out.”

Instead of writing a policy based on international best practices, Campbell’s team ended up adopting a more exploratory approach, running pilots to test their assumptions before eventually drafting the policy.

One of these pilots sought to explore how regular suppliers could embed elements of social procurement or workforce development into their own operations. For example, Black &Veatch, an engineering company working on water infrastructure projects, ended up sub-contracting with a minority-owned printing company, and later hired two engineers who were part of a mentorship programme for recent immigrants.

“[The city was] looking for ways to identify organizations and companies that could essentially provide the same service at the same price,” recalls David London, project manager at Black &Veatch. “It was just a matter of figuring out how to identify these companies. But once we were able to do that, it was very easy.”

London explains the process was not about giving preferential treatment; to be considered for a contract, diverse suppliers must abide by the same rules as others, including bidding at the lowest price. And the two engineers hired through the mentorship program were selected because their qualifications were the same or better than those of other candidates.

The policy doesn’t use quotas, but rather encourages city divisions in charge of their own procurement and regular vendors to seek out diverse businesses. When bidding for a contract, vendors may earn points for making plans to sub-contract a diverse supplier, for instance. The city’s Procurement, Social Development, Housing, and Employment and Social Services divisions, as well as its Economic Development Commission, are all participating in Social Procurement by helping regular vendors identify opportunities for workforce development through one of their existing programmes, with a particular focus on youth employment.

All of this is expected to come at no extra cost for the city, which has only committed to hiring one additional staffer to work on the policy’s implementation. Each division is expected to streamline the new procurement guidelines into their regular activities.

Anchor institutions

By 2021, the city hopes that a third of contracts worth more than CAD 5 million (USD 3.7 million) will include a workforce development component that includes hiring and training workers belonging to vulnerable groups, like immigrants, youth or people with disabilities. Other goals are that 75 percent of proposals sent by suppliers will include a workforce development programme, and that 50 percent of direct suppliers will have or will be developing a diversity policy for their supply chains.

Staff from the various city divisions engaged in the policy are still working on establishing the tools and metrics that will help measure its actual impact.

But the city of Toronto is already looking beyond its own procurement power to other players in the region. The city is part of AnchorTO, a group of 18 local institutions that include hospitals, public authorities, and universities looking to use their combined CAD 17 billion (USD12.7 billion) annual spending to drive inclusive economic growth.

One such effort is being led by the metropolitan transit authority Metrolinx. For a CAD 5.3 billion (USD 3.96 billion) light-rail project, Metrolinx has committed to hire among historically disadvantaged and marginalized groups for part of its construction workforce.

“Government is making the most significant investment in public transit in two decades,” says Colette Murphy of the Atkinson Foundation, which supported the development of AnchorTO. “Metrolinx is doing it in a way that is intentionally looking at how they can integrate good job opportunities, apprenticeships, social enterprises, spending opportunities for residents who have not had access or have benefited from economic development in the past.”

“Our public institutions need to think of themselves as public wealth builders.”

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Ottawa weighs employing ‘social procurement’ plan to support women, minorities

According to a November, 2016, memo prepared for then minister for the status of women, Patty Hajdu, the Liberal government is currently investigating the feasibility of adopting an ‘inclusive federal procurement’ strategy though which the country can better support women- and minority-led business initiatives.
JEFF MCINTOSH/THE CANADIAN PRESS

 

The Liberal government is thinking about using its massive purchasing power to support women in business.

“Inclusive federal procurement is a potential avenue through which the Government of Canada can demonstrate leadership and support for women’s entrepreneurship,” said a November, 2016, memo prepared for Patty Hajdu, who was then minister for the status of women.

“The Treasury Board of Canada is currently looking at opportunities to better link federal procurement practices with the broader socio-economic objectives of the Government,” said the memo. “It is recognized that women and other under-represented groups should be considered in a renewed federal approach to procurement.”

 The Canadian Press obtained the document under the Access to Information Act.

Prime Minister Justin Trudeau tasked the federal public services minister – a role currently being filled by Natural Resources Minister Jim Carr, while Judy Foote is on a leave of absence – with modernizing procurement practices. That includes “social procurement” where the government uses contracts for goods and services to achieve broader policy goals, such as increasing the diversity of the supply chain.

 Last year, Status of Women Canada asked the Conference Board of Canada to make the case for why using more diverse suppliers – defined as businesses that are majority-owned, operated and controlled by women, visible minorities, Indigenous Peoples, members of the LGBTQ community or others facing discrimination – makes good economic sense.

A draft of the report released alongside the memo said benefits can include higher profits, greater employee retention and even access to new markets, including in the United States, which has had supplier diversity policies at the municipal, state and federal level since the 1960s. U.S. Trade Representative Robert Lighthizer included maintaining these programs among his goals for the outcome of continuing North American free-trade agreement negotiations.

The report pointed out that, while many businesses had adopted such policies, public institutions and governments were behind the curve.

The report also looked to pre-empt some likely opposition to the idea by noting supplier diversity is neither a social program nor a guarantee of business.

“Corporations with an effective supplier diversity program do not compromise on the quality or the cost of the services or products they supply, nor do they change the service requirements for all suppliers,” said the report.

The memo urged Ms. Hajdu to use the report to convince her fellow cabinet ministers to enact such a policy for the roughly $15-billion to $20-billion in annual federal procurement spending.

The 2017 federal budget hinted at things to come when it said the Liberal government would “encourage procurement from companies led by women and other underrepresented groups” for its new $50-million program aimed at supporting innovation.

Philippe Charlebois, a spokesman for Status of Women Minister Maryam Monsef, said department officials are examining key issues and potential strategies to “advance the participation of women-owned enterprises in the federal procurement process.”

The City of Toronto brought in a social procurement policy last year as part of its poverty-reduction strategy.

There are various criteria depending on the value of the contract, but for competitive bids worth between $3,000 and $100,000, the city has to invite at least one supplier that has been certified as diverse, such as majority-owned, operated and controlled by women, to be one of the three finalists.

Denise Campbell, the director of social-policy analysis and research for the City of Toronto, said she welcomes other levels of government getting on board with the idea.

 “It’s one of those tools where we think you can use existing budgets to create a larger impact,” she said.

The report to Ms. Hajdu said the Women Business Enterprises Canada Council (WBE Canada) has certified more than 375 women-owned business that employ more than 13,600 people and generate more than $2.8-billion in revenue.

That seems to be only a fraction of the potential, as the report said there are nearly one million Canadian women who own businesses that contribute more than $117-billion to the economy each year.

Mary Anderson, the president of WBE Canada, which has teamed up with two similar organizations to form the Supplier Diversity Alliance Canada, said they have been working closely with Public Services and Procurement Canada on the issue.

“We recognize that any change takes time,” Ms. Anderson said.

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