Danish Efforts in Innovative Public Procurement

Christian Bruhn Rieper Head of Secretariat Nordic Innovation Forum, A Seminar on Green Growth and Welfare, 24th of May 2012, Reykjavik

Budget from 2010 to 2012

Source: The Danish Finance Act

236262 262

0

100

200

300

2010 2011 2012

DKK

mio

.

• A political agreement to establish the Business Innovation Fund in November 2009

• Allocation of 760 million DKK in total from 2010 to 2012

• An independent Board of Directors – representatives from Danish companies

• 434 applications so far. Applying for approx. 2,3 billion DKK.

• 91 projects supported so far for approx. DKK 427 mio. kr. in total grants: DKK 226 mio. to Green solutions DKK113 mio. to Welfare solutions DKK 88 mio. to less favoured geographical areas

• Focus on SMEs: 83 pct. of the companies supported have fewer than 50 employees

Facts about the Business Innovation Fund

Economic challenges

Growth and innovation not supported by increased government spending and business-oriented grant schemes

Use existing public spending smarter - The Danish public sector use DKK 290 billion annually on procurement!

Ensure double bottom line: o More effective public sector performance o Encourage the development and

market introduction of new innovative solutions

Focus on the Public-Private Innovation through more intelligent public demand

Source: Ministry of Finance, Economic Outlook, May2011

Per cent of GDP Per cent of GDP Financial crisis

Fiscal Consolidation

Agreement

Without areement With areement

Structural budget balance

Innovative Public Procurement – An international trend

European Commission:

• Pre-commercial procurement (PCP) is an approach for procuring R&D services.

United Kingdom: • Small Business Research Initiative (SBRI) • Forward Commitment Procurement (FCP)

Finland: • Support of functional requirements in public tenders (TEKES)

Sweden : • Pilot projects on public procurement of innovative solutions (VINNOVA) • Education and training in innovative public procurement (Tillväxtverket)

Why are special initiatives needed?

Lack of strategic focus. Procurement is traditionally a tool for buying a

very specific product or service that everyone knows. Not a tool for change!

Lack of connection to process. Procurement is normally not linked to the processes involved in producing the public services. An advanced business case includes Total Cost of Ownership (TCO), the possibility of optimizing resources, getting a smoother workflow etc.

Lack of incentives. Rules and regulations are interpreted very strict. Better safe than sorry. That explains the use of more and more specifications in public tenders instead of functional requirements.

Our approach to innovative procurement

Focus on areas where the public sector are to make major investments

in the years to come (such as climate change or elderly care)

Create and fund partnerships between public purchasers and private companies to make sure that the public investments can become a driver for innovation

Make a strategic choice of public partners that are ready for change (create the coalition of the willing)

Experiment with different methods of innovative procurement to gain

experience and establish best practice

Three Danish initiatives

1. Procurement of innovative solutions in the welfare sector

2. Partnership for health and medical innovation

3. Partnership for adaptation to climate change

Supply

Demand

• Purpose: Enhance the possibility of new and innovative solutions being introduced in

the public sector to help cutting costs and improving services

• Support for: • Market analysis • Establishing overview of needs and baseline • Draft procurement, incl. functional requirements • Validation of offers, including business cases

• For whom? Only public sector bodies can apply for support.

Procurement of innovative solutions in the welfare sector

2 cases of the 6 projects supported so far

The virtual reception

The local authority of the city of Skanderborg is procuring a virtual reception for its elder care homes. The reception has to make it easier and less resource demanding for the caregivers to greet and guide visiting family members and others coming to the elder care homes.

Concept on hospital catering The Region of Southern Denmark is procuring for a concept of catering for hospitals that can combine the wishes of the patient and the needs according to patient record e.g. with regard to monitor intake of calories.

Evaluation of the initiative

A pilot initiative: This an experiment. Will the use of functional requirements in public tenders open up for innovation? Learnings and effect: Projects are monitored closely on two levels: Will the projects realize the potential effects regarding introducing new

products and services in the public sector and regarding better and more effective service?

What conditions and competencies are key if the process of procuring in a new way is to succeed?

Evaluation early 2013: First learnings, including case studies to be published.

Partnership for health and medical innovation

Public investments for DKK 40 billion in new and better hospitals • Modern hospitals Need for a significant effort to accelerate development and market

maturation of modern Danish health and medical solutions • New business opportunities for Danish companies Need for a focused and coordinated effort to ensure exploitation of

the commercial potentials • No local solutions to national or global challenges Need for coordination and sharing of knowledge – no development

of unique solutions to common problems

DNU

Bispebjerg

Facts about the partnership

Advisory Board suggests focus areas

Steering Committee decides on focus areas

Applications received and processed

Public-Private Innovation of new solutions

Tenders form the Danish Regions / hospitals

Participants: Business Innovation Fund and all five Danish Regions Objective:

To help realize the business potential in the hospital building by promoting development, standardization and market maturation of modern Danish health and medical solutions

Approaches: Identifying common challenges and pooling demand for new innovative solutions Development seperated from procurement (according to EU rules on public procurement) Public-Private Innovation – new solutions are developed and tested in partnerships with

Danish hospitals Incentives:

DKK 100 million in co-funding of innovation projects in 2012-2013

Focus areas in 2012

1. Hospital acquired infections and hygiene Infections acquired during hospitalization is causing the death of 3000 Danes each year

New innovative solutions that can contribute to reducing hospital acquired infections

2. Logistics and traceability Daily handling af large amounts of patients and equipment requires optimal planning, management of transportation and organization of services and traceability

Solutions which supports a cost-effective management of logistics at hospitals and / or improve traceability in hospitals

3. Telemedicine and self-reliance

Increasing number of patients with long-term and chronic illnesses an a growing need for aftercare and rehabilitation at home

Solutions that support treatment, care and rehabilitation at home or support self-reliance both in and outside the hospital

Partnership for adoption to climate change

Every Danish municipality must have a strategy for adaption to climate change within the next 2 years

To develop innovative solutions (products and services) in relation to rain and wastewater management – solving local water related climate change challenges cheaper and more efficient

To develop generic solutions – creating growth, jobs and export in Danish companies

To reduce economic risk in buying new innovative solutions

To disseminate the use of new methods of public procurement

Facts about the partnership

Participants: Municipalities and their utility companies from across Denmark

Approaches: Identifying common challenges and pooling demand Tender based on functional requirements - combining innovation and acquisition Public-Private Innovation - Municipalities and waste water utility companies will contribute

with their experience and knowledge in the development process

Incentives: DKK 30 million in co-financing from The Business Innovation Fund Municipalities and utility companies will buy developed solutions if they satisfy requirements

set in the tender

Common challenges Pooling demand

Tender – based on functional requirements

State aid for development Public-Private Innovation

Acquisition commitment

What is the next step?

A national strategy for intelligent public procurement is

announced in the Government platform ”A Denmark that stands together”:

“About a third of the total demand in society comes from the public sector. There is great potential in using this demand so that it promotes innovation in both the public and the private sector e.g. through the use of the functional requirements. The Government will therefore provide a strategy for intelligent public procurement across ministries and levels of authority.”

The Danish efforts in innovative public procurement are likely to be further strengthened in the years to come!

Thank you!

E-mail Christian Bruhn Rieper: chburi@erst.dk

Read more: www.fornyelsesfonden.dk