Supporting Partnership in Resource Development: Impact and Benefit Agreements

Impact and benefit agreements (IBAs) have emerged as the primary mechanism for Indigenous participation in resource development projects. So, what are IBAs exactly? What do they achieve for industry, and what benefits do they typically provide Indigenous peoples? In what circumstances do they arise? What are the critical considerations in their negotiation? And what are the steps that follow their conclusion?

I’ll answer this and more below.

Maximizing Benefits and Minimizing Impacts

IBAs go by many names: participation agreements, benefits agreements, and sharing agreements, to name a few.

Fundamentally, such agreements all share similar features: they are privately negotiated, legally enforceable contracts that establish formal relationships between Indigenous parties and industry proponents regarding a development project within a traditional territory. Mines, dams, pipelines, transmission lines and other major energy or infrastructure projects often give rise to IBAs. Such agreements legally bind industry proponents and Indigenous parties affected by the proponent’s project to each perform specific obligations. Successful IBAs appreciate the community and regional context, creating a mutually beneficial relationship by balancing the community’s goals and objectives with the proponent’s economic interests.

From the perspective of the Indigenous party, IBAs serve two primary purposes:

1. they seek to address impacts—the adverse impacts of development activities on Indigenous peoples. Typically, this is done through enhanced mitigation measures that go beyond regulatory requirements, as well as through financial compensation for the project’s adverse impacts.
2. they seek to provide the Indigenous party with a fair share of the project’s benefits. IBAs aim to minimize or compensate for a development’s negative environmental and cultural impacts while maximizing the project’s employment, education and financial benefits for the Indigenous party.

From the industry side, the primary benefit of an IBA is certainty.

In exchange for agreeing to enhanced mitigation and financial compensation measures to address impacts—and to provide a range of financial, employment and other benefits to the Indigenous party—the proponent expects community consent or support for the project to go ahead.

Despite sharing these fundamental features, individual IBAs are unique and take its shape and character from the goals and interests of those involved, as well as the circumstances in which the project unfolds. Many IBAs are negotiated in phases, beginning with initial agreements (often “Interim Agreements” or “Memorandums of Understanding”) to address process and immediate issues arising between the parties. Similarly, exploration agreements, or pre-IBA agreements, at the exploration and prospecting stage that are not as comprehensive as IBAs are often entered into at this early stage to establish a good relationship between the parties. Such initial agreements may be revised several times until a full IBA is negotiated.

Critical Components of an IBA

IBAs vary considerably in scope and complexity, and there are few limits (save imagination) concerning the topics that may be included. With that said, most final IBAs include some combination of the following:

A preamble, setting out the history of the relationship between the parties and their respective and shared objectives for entering the IBA.

Legal provisions establishing the contractual relationship. As IBAs are contracts, legal language is essential to clearly identify the parties, the project, and their respective legal entitlements and obligations concerning the project. These include representations of the authorities of the parties, clear definitions and interpretive provisions, dispute resolution mechanisms, clarity about how to deal with a future sale or change in ownership of the project, and other ‘general’ provisions that make the agreement legally clear and enforceable.

Community benefits. These include employment opportunities and targets, skills training, preferential hiring and employee advancement, education provisions, and capacity building. Initiatives such as labour supply development programs, workplace conditions, and community support provisions are typically included. 

Business provisions. Preferential contracting, direct investment and other preferred business arrangements often constitute a substantial portion of the benefits of an IBA. A wide range of mechanisms are usually included, from direct award contracts or set-asides to preferences for Indigenous-owned businesses in a competitive bid environment. Many IBAs also impose obligations on third-party suppliers and contractors for the project to joint venture or subcontract with Indigenous businesses.

Financial terms and conditions. Financial arrangements are fundamental to securing both compensation for impacts and economic benefits from the project. The forms of financial arrangements typically include fixed and variable payments. Fixed payments generally are fixed-amount cash payments triggered by scheduled dates (i.e., annual payments) or by specific events (i.e., the start of construction). Variable payments include royalties based on volume output, royalties based on value, mining payments based on profit-sharing terms, or distributions paid in proportion to equity ownership of the project. Financial arrangements can take several forms and will ultimately reflect the economic projections for the project and the relative strength in terms of leverage and negotiating positions of the parties.

Environmental management. Addressing environmental impacts is a crucial feature of many IBAs. Enhanced environmental protection may be negotiated to address impacts, including terms and conditions for specific mitigation measures, environmental monitoring and reporting. Terms and conditions often include the establishment of independent monitoring bodies that track the actual on-the-ground environmental impacts of the project against the predictions made during an environmental assessment, as well as environmental committees to provide a forum for the Indigenous party and the proponent to collaborate in the environmental management of the project.

Provisions to incorporate traditional knowledge in the design, process, and environmental management of the project can help balance different knowledge and perspectives about impacts between the proponent and the community and to respond appropriately to changing environmental conditions.

Enhanced mitigation measures. Parties typically agree to a combination of financial compensation provisions for known impacts at the outset of a project and procedural arrangements for addressing negative environmental and cultural impacts that are likely to arise during construction, operations, closure and reclamation. These may include requirements for the project to alter or adapt operating procedures in response to identified adverse impacts. They may also include harvester and traditional land use compensation, cultural and heritage compensation, and commitments to address unforeseen environmental impacts. Each project will generate a unique range of impacts, so specifics of enhanced mitigation measures will vary considerably between agreements.

Project support requirements. IBAs commit a community to support a project, provided the agreement’s terms and conditions are complied with. Proponents typically seek assurances that they can advance the project without the community’s direct political or legal opposition. To this end, IBAs often include provisions that limit the Indigenous party’s ability to oppose or challenge the project in a legal or regulatory context or without first attempting to address the issues through a dispute resolution process under the IBA. Careful consideration of these provisions by the Indigenous party is recommended to avoid being silenced or subject to onerous project support obligations.

Project scope and future developments. While an IBA is typically intended to span the entire life of a project, from construction, to operations, closure and reclamation and monitoring, the project should be carefully defined so that any potential changes in the project’s scope or changes in circumstances trigger review and revision provisions. Significant changes in scope or future developments should generally give rise to new agreements that are appropriate to those future circumstances. IBAs should be tied to the project so that future owners are bound to the terms of the agreement.

Are IBAs legally required?

IBAs are a mechanism that enables a proponent who wants to develop resources on traditional Indigenous lands and territories to seek the support of the Indigenous party for that development. IBAs do not replace the Crown’s duty to consult. Still, the Crown typically delegates procedural aspects of consultation to third parties, including proponents. IBAs often arise in this context. Negotiating an IBA is an effective mechanism for such procedural consultation. If an IBA is successfully concluded, it also serves as a basis for confirming Indigenous support for the project, which is a crucial element of consent.

Because of these process advantages, IBAs are increasingly becoming legal requirements. They are mandated under many modern treaties in Canada, such as the Nunavut Land Claims Agreement, the Inuvialuit Final Agreement, the Labrador Inuit Land Claims Agreement and the Tlicho Agreement, amongst others, for all major developments within the treaty settlement area.

Additionally, to varying degrees, federal, provincial and territorial governments have begun to incorporate requirements for negotiating IBAs in different regulatory regimes. For example, in British Columbia and Saskatchewan, the provincial governments encourage proponents to negotiate IBAs with affected Indigenous communities. Meanwhile, in the Northwest Territories, the recently passed Mineral Resources Act mandates benefits agreements to be negotiated by a proponent and affected Indigenous governments for mineral development projects. The legislation intends to ensure that Indigenous communities achieve positive benefits from any mineral development.

Deciding to Negotiate an IBA

If the community does not oppose the project outright, it may choose to negotiate an IBA as an effective engagement and consultation measure to obtain an understanding of the full scope of a project’s impacts as well as the potential for securing project participation or benefits.

Timing becomes strategic—a community may negotiate an agreement before, during, or after an environmental assessment or other regulatory review processes. Negotiating before regulatory approvals gives communities significant leverage (as the proponent does not yet have project approval) and opportunities to influence the ultimate project design. However, the full impacts of a project may not be known until after an environmental assessment. Many Indigenous parties, therefore, choose to leave some issues on the table to be negotiated following an environmental assessment but before project approval decisions to fully account for a project’s potential impacts within their agreements.

In deciding whether to negotiate, the Indigenous party must carefully weigh the goals and objectives of the community, the potential trade-offs in environmental quality and cultural and community impacts, as well as the potential economic benefits of the project. These are not easy decisions and should not be rushed. Ongoing consultations within the community to consider whether an agreement would serve or undermine these interests are advised. Communities also have more freedom to pursue political strategies about a project where no agreement is in effect. Leaders must be mindful that concluding an IBA will likely limit possibilities for opposing the project later.

Careful thought must be given to ensuring that any trade-offs made in the agreement do not undermine a community’s ability to engage in the environmental assessment or regulatory process fully, take legal action to prevent cultural or environmental damage, or sue if unpredicted environmental or cultural damage occurs. For Indigenous parties, achieving their goals in any IBA negotiations will always involve considering the project in light of the community’s broader economic, social and cultural interests.

Ultimately, the final terms and conditions of an IBA should resonate with the wishes and priorities of the community. If such consensus cannot be achieved, an IBA may not be an appropriate tool, and other options should be considered.

Implementation and Maintaining Relationships

Once an IBA is reached, the real work begins. Implementation is, by far, the most critical part of the process. Without effective implementation, monitoring, and review, many of the benefits of an agreement will not be achieved. The agreement should, therefore, ensure that there are adequate resources and mechanisms for effective implementation to occur. It is much easier to set an objective during negotiations than it is to monitor the actual performance of the agreement. Adequate staffing and training for implementation coordinators, along with ongoing leadership support, are critical factors in empowering communities to hold proponents accountable to their promises.

The relationship between proponent and community begins during the negotiation of an IBA but continues throughout a project’s life cycle.

Communication and trust are integral to this relationship, but there will likely be many changes in staff as the project moves from the regulatory process into construction and operations. IBAs must ensure ongoing mechanisms to promote collaboration at every phase of the project and enable leadership to enforce terms and conditions, evaluate how well the agreement is delivering the promised benefits, and remedy or resolve the disputes that will inevitably arise.

The growth of IBAs marks a recognition of the agency of Indigenous peoples and the right to free, prior and informed consent (FPIC) when a major resource project may adversely affect their rights. Corporate actors are becoming more proactive at engaging Indigenous peoples in seeking their consent to natural resource extraction on their traditional lands through IBAs.

Before IBAs, resource extraction offered little to Indigenous peoples. IBAs provide a means for Indigenous peoples to take part in resource projects as real partners. Where appropriately done, this model for negotiated consent offers a version of FPIC for the Indigenous communities involved.

Disclaimer: This article provides general information only and is not meant for use as legal advice for specific legal issues or problems. We provide this for educational purposes only. If you need legal assistance, please feel free to contact OKT for further information directly at nleeson@oktlaw.com or 867.447.0605.

Written by: Nick Leeson

Nick Leeson is a former OKT Lawyer.