Innovation procurement is generating increasing interest in recent years. Whereas in 2011 the Dutch government was willing to spend only 2.5% of the government-wide procurement budget on innovation procurement, a motion was submitted in late 2020 to actually promote innovation procurement and expressly set targets. Former State Secretary Keijzer of Economic Affairs and Climate Policy pleaded in favour of innovation procurement in early 2021, drawing attention to the positive aspects. According to Keijzer, innovation procurement helps to solve societal problems and has positive side effects on the economy. The European Commission also believes that innovation procurement can be beneficial to the economic recovery of the European Union after the corona crisis. Innovation procurement furthermore contributes to the transition towards a sustainable and digital Union. The increasing interest in this type of procurement on the buyers’ side therefore comes as no surprise. To offer tools to public procurement officers and to stimulate innovation procurement, the European Commission presented the Guidelines on Innovative Procurement on 18 June 2021.
Please note though: innovation procurement is not the same as innovative procurement. Innovation procurement is about the final result, the innovative solution. Innovative procurement is about the innovative organisation of the procurement procedure by the contracting authority. A combination is possible: in that case an innovative procurement process is used to purchase an innovation solution. This blog addresses innovation procurement and explores the European Guidance.
Purpose of the Guidance
In 2014 already, on the introduction of the new Procurement Directives (Directive 2014/23/EU, Directive 2014/24/EU and Directive 2014/25/EU), the Commission adapted the public procurement framework to the technological developments, economic trends and increased societal focus on sustainable public spending at that time. The possibility of the innovation partnership was thereby introduced (Article 31 of Directive 2014/24/EU). An innovation partnership consists of three phases: (i) the selection phase; (ii) the research and development phase; and (iii) the commercial phase.
- In the selection phase, the contracting authority defines the problem for which an innovative solution is being sought and the minimum requirements that the solution must meet. In this phase, as in traditional procurement, the most suitable parties are selected, as well as the best tenders.
- In the research and development phase, those parties to which the contracts have been awarded, also known as “innovation partners”, develop the innovative solution. That solution may be a product or service, but also a process innovation.
- Finally, in the commercial phase, the actual purchase of the innovation takes place.
Several years have now passed and the importance of innovation procurement has only increased. It is no longer merely or mainly a question of whether the procurement is legitimate, but also whether it is cost-effective and of good quality, and whether it has maximum societal and ecological impact. Innovation procurement is the best means of achieving these goals and offers opportunities for both the public sector and innovative start-ups. According to the Commission, the Guidance is a source of inspiration for all the players involved in procurement: not only the procuring public authority and the tendering companies, but also the end-users of the procured solutions and the policy-makers responsible for creating a favourable regulatory framework.
Benefits of innovation procurement
So what exactly are the specific benefits of innovation procurement? Currently, only half of the potential power of innovation procurement is being used. But innovation procurement is beneficial for both buyers and tenderers.
The European Commission believes that public investment and innovation are the key combination in achieving a green, digital and resilient economy, and can contribute significantly to the implementation of the European Green Deal. The Guidance explains the benefits in the form of several examples. For instance, the public sector is an important consumer of “space services”, such as solutions in the field of public security (emergency services, disaster relief, investigation and border management) and in the field of critical infrastructure and public transport. These are areas where innovation is easy to achieve, such as autonomous shuttles and smart cities. See in this regard also the European Pre‑Commercial Procurement (PCP) project.
Innovative solutions can furthermore ensure that the same or even better results are achieved at a lower price. Also, innovative solutions may address a new need or new expectation that existing market solutions are not meeting. Finally, public services can be made more public-friendly and more in keeping with the expectations of technology- and environment-minded citizens. It can provide essential opportunities for innovative start-ups that are struggling to break into the existing market.
Content of the Guidance
The Guidance is divided into five chapters. Each chapter provides practical tips, illustrated by various examples. Chapter 1 clarifies the innovation procurement concept, which has already been covered in this blog. Chapter 2 outlines a policy framework aimed at innovation procurement. It argues in favour of a clear policy mandate that links various policy objectives that can be achieved through innovation procurement. They include sustainable growth, sustainable healthcare for the ageing population and combating climate change. This gives institutions the necessary power to act. It furthermore recommends starting small and in a manageable manner, because the cultural and procedural changes that innovation procurement entails cannot all be implemented overnight. The advice is, once the organisation is ready for innovation procurement, to scale up fast and to convert ambitions into concrete actions (an action plan) and obligations. That way, responsibilities are assigned and the organisation is ready for innovation procurement. It is important, however, that those involved on the procurement side are properly trained and acquire sufficient skills.
Chapter 3 illustrates how to open the doors to innovators. In the Commission’s opinion, that is a major challenge. First, it is important that procurement procedures are suitable for and open to smaller start-ups. They are often more interested in offering innovative solutions. This requires clear communication with the market players involved, particularly since they are not accustomed to participating in tendering procedures. The administrative burden must furthermore be reduced and the selection criteria (the financial ones in particular) must be eased. They are often an obstacle for small innovative start-ups. Another option is to divide the contract into lots in order to simplify participation and also to ease practical parameters, such as payment arrangements. A second important consideration is the mobilisation of innovation brokers. The links between innovative start-ups and public buyers are often weak. Innovation brokers can help to build or strengthen them.
Once procurement procedures are geared towards innovative start-ups, public buyers will of course want to attract actual innovation. Chapter 4 explains how that can be done. The Commission emphasises that the first and most important step is to assess the needs: what is the problem and where is there room for improvement? Suppose the Dutch government wished to switch to a new cloud-based infrastructure. Interviews with employees, for example, could then be used to obtain an impression of the wishes in terms of capacity, mobility and access conditions. It could then be established what the market has to offer: is there a new trend or can any technological advantages be attained? Market consultations are ideally suited for this purpose. The Guidance provides various tools for drawing up and conducting market consultations. Finally, the Guidance provides various options for innovation-friendly procurement procedures, such as the competitive procedure with negotiation and the competitive dialogue, as well as the innovation partnership. At the end of Chapter 4, some considerations can be found on how to avoid public funding from constituting (prohibited) state aid. The annexes to the Guidance provide further templates for inviting suppliers, as well as questionnaires for market consultations.
Guidance and practice
The Guidance serves as a practical guide for contracting authorities that wish to focus more on innovation procurement. It is therefore an interesting addition for contracting authorities that wish to read up on the subject and a confirmation of the possibilities offered by the law and regulations in this area. In our opinion, however, the Commission has insufficiently addressed an important element that contracting authorities come up against: what technical specifications and award criteria can you, as a contracting authority, best set? What important lessons can be learned from the various examples, which have been collected across Europe? Although this seems a missed opportunity, the practical examples demonstrate that a great deal is possible in this area.
