Where are the Benefits in "Benefit Agreements"?

Lay Summary 

There are many different types of benefit agreements that are seen throughout the developed and developing world. As a result, the term "benefit agreement" is very broadly applied, it can mean:

-An agreement with Aboriginal nations with asserted land claims
-Industrial benefit agreements with countries, regions, companies, municipalities as well as a broad range of stakeholders
-Local content requirements - specifically internationally
-Community benefit agreements - ex. land development/ good neighbour agreements

Benefit agreements have a major impact on the economic, social and environmental well-being of the province of Newfoundland and Labrador. Benefit agreements have traditionally been entered into by natural resource companies and the provincial government to ensure that license to operate and regulatory requirements are met around economic, social and environmental objectives. Yet, their form, structure and efficacy are unclear. The purpose of this research is to explore the concept of benefit agreements and their implication to Newfoundland and Labrador.

Companies across Canada and the world are entering into various forms of benefit agreements with governments and communities located near company operations. The intent of these agreements is to:

(1) Secure long-term local support for exploration and commercial resource development;
(2) Mitigate any potentially negative environmental or socio-economic impacts the development might cause for communities; and to
(3) Facilitate the transfer of tangible benefits to the local region.

One of the difficulties in exploring benefit agreements is that they are usually confidential bilateral agreements, negotiated between corporations and communities to address a multitude of adverse socioeconomic and biophysical impacts that can arise from resource development. Confidentiality of these agreements, as a result, precludes a meaningful analysis of what they are and what they mean to a larger society.

Understanding the role and approach to managing and securing local content requirements is a key determining factor in ensuring the success of benefit agreements in Newfoundland and Labrador both in the past as well as the future. Developing a strategy to address future plans and understanding the role of local content are important elements to address the efficacy of benefit plan.

Benefit plans policies are used strategically to not only to increase the output of local firms, but also to create a "level playing field" for local industry by forcing similar procurement conditions onto foreign firms. They are important governance mechanism for the development and implementation of benefit agreements. Most of all, they accelerate the benefits that accrue to a society rather than not having agreements in place.

How benefit agreements are negotiated emerges as a critical successful factor from the research. Moreover, research shows that usually three factors must be considered: Objectives, circumstances and development opportunities. Elements such as financial, labour and economic development provisions are seen in most benefits agreements. As well, ensuring that communities, the economy and environment are also protected and prosper are also essential elements that are seen in most benefit agreements.

There are also limitations and drawbacks to using benefit agreements including a lack of transparency, distributional issues, expectation management and wealth consumption. The main limitations in how the benefit agreements are implemented including failure to recognize the role of municipalities and communities, absence or inadequacy of skills in local industry as well as complex and culturally inappropriate institutional arrangements to regulate benefit agreements. In our research, we found that most of these deficiencies, in one form or another, also prevent how benefit agreements are developed and perceived in Newfoundland and Labrador. Overall, the negative issues and failures associated with benefit agreements can be overcome with a more strategic approach to their development and making sure they are more effective.

In this paper, we also identify a number of good practices in the development and management of benefit agreements. For the oil and gas industry, the high level good practices around benefits agreements can be best summarized as:

-Improve local skills and capabilities
-Focus on developing a creative and demanding environment for business development
-Understand and address barriers to entry in the industry
At the same time, we have also identified a number of high level concerns around the management of benefit agreements including:

-Consuming wealth rather than creating value
-Attracting high cost investors
-Inferior industry development
-Red tape and corruption
Thinking and evaluating the role of benefit agreements, their role in economic and social development, as well as what strategically society wants to achieve from their use are important questions not only government and industry but for the whole of the province of Newfoundland and Labrador. Taking a strategic approach, one that recognizes both the present circumstances and future aspirations of industry, government and society as a whole, is essential for maximizing the "benefits" that can emerge from benefit agreements.

Faculty of Business Administration
Harris Centre Applied Research Fund
St. John's
Newfoundland and Labrador
Financial Planning and Benefits
Labour and Employment
Industry Sectors 
Management of Companies and Enterprises
Start date 
1 Sep 2014
End date 
31 Mar 2016