Public Procurement of Innovation
Impressions from the UK case
Jakob Edler, (with Elvira Uyarra)
based on work including
Luke Georghiou, Jillian Yeow Sally Gee
Workshop: Demand Side Policies and
Public Procurement for Innovation
Unicamp, Campinas, May 28-29 2015
1
Background
29/05/2015
1. PPI in the UK policy agenda
A panacea! A panacea ??
Landscape
PPI policy approaches
Instruments
2. PPI in practice: results of a survey
Procurement and Innovation
Barriers
3. Conclusion
3
Structure
Manchester Institute of Innovation Research, Manchester Business School
Procurement agenda increasingly „crowded !
Source: Uyarra (2010)
29/05/2015
2002
•Byatt review of local government procurement
2003
•Kelly review of gov. market place
•National Procurement Strategy for Local Government
2004
•Gershonreview of Public Sector Efficiency
•Centres of Procurement Excellence
2005
•Cox review of creativity in business
•Sustainable Development Strategy
2006
•Strong and Prosperous Communities White paper
•Sustainable Procurement Action Plan
2007
•Transforming Government Procurement Strategy
•National Improvement and Efficiency Strategy
•Sustainable Procurement Strategy for Local Government
2008
•Procurement Capability Reviews
•Glover review on SME procurement
•White Paper „innovation nation‟
•Regional Improvement and Efficiency Partnerships (RIEPs)
•Operational Efficiency Programme
2009
•Roots review of smarter procurement in local government
•Innovation Procurement Plans
•„Total Place‟
•Promoting Skills through public procuremnt
2010
•„Policy through procurement‟
•Coalition Gov: efficiency agenda
•Efficiency & strategic procurement
•Innovation and markets, SMEs
•Sustainability
•„Place‟
Public Procurement: a panacea?
Ever more agendas: how to respond?
Potential for tensions between:
Potentially conflicting policy goals
local and national level goals
Between policy rationales
Between professional communities
(procurers and commissioners,
procurers and service delivery)
within and across organisations
Local Government Procurement
Innovation
Public sector reform
Total Place
Localism agenda
Procurement support (Roots)
Efficiency pressures
Policy through
procurement
HMT/OGC Collaborative procurement
Regional Improvement
and Efficiency
partnerships
Public Procurement: a panacea?
Procurement Landscape
Devolved
Governments
7%
Non-Ministerial
Departments
2%
Other Ministerial
Departments
58%
Local
Governments
33%
: Procurement of Central and Local Governments
Source: Public Expenditure Outturn Updates, 25 February
2010
Procurement of Governmental Departments
0 10 20 30 40 50 60 70
Health (NHS and non-NHS)
Defence
Scotland
Justice
Communities and Local Government
Culture, Media and Sport
Northern Ireland Executive
Wales
Work and Pensions
Transport
Energy and Climate Change
Home Office
Chancellor's Departments
Business, Innovation and Skills
Environment, Food and Rural Affairs
Children, Schools and Families
Cabinet Office
Foreign and Commonwealth Office
International Development
Independent Bodies
Law Officers' Departments
Northern Ireland Office
2008-09 2004-05
Figure 3: Procurement of Governmental Departments (£ billion)
Source: Public Expenditure Outturn Updates, 25 February 2010
Importance of public procurement (share of total demand)
PPI in UK policy agenda – leading, but…
Strong on the agenda, but implementation?– Kelly report (2003), Innovation Report, DTI (2003)
– Capturing Innovation (2004)
– Cox Report of Creativity in Business, HMT (2005)
– Sainsbury Review of S and I, HMT (2007) (FCP, PCP)
– Innovation Nation, DTI (2008): IPPs in Departments
– Glover Report (2008) SME (innovation engines) in procurement
– House of Lords Select Committee (2011): implementation problem!
Efficiency Turn:• Green Report 2010
• Lean Review, SMEs, Framework Contracts, GPS, savings…
In the name of (national) growth– Growth Strategy (2011): procurement for growth , sectoral strategy
– “Buy British” (but do not say it)
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PPI in UK: policy innovation (but…)
Public Procurement Plans
SBRI (2001, re-launched 2008, increases in budget)
Forward Commitment Procurement– Three stage process,
– formal commitment to buy if specifications are met
Carbon Compacts– Voluntary agreements of departments and firms
– Critical mass for carbon positive purchases , progressive carbon targets
The Innovative Technology Adoption Programme (iTAPP) in health Support adoption of innovation, reporting and assessing, recomending
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PPI in practice – Survey Results
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Analysis on procurement practice in UKSurvey in UNDERPIN study
(Edler, Georghiou, Uyarra, Yeow 2011-2013)
To understand
Scope of innovation
Barriers and enablers for innovation in
the procurement process.
Target population: suppliers of UK
central government, local
authorities (England only) and
English NHS
CATI survey. 800 responses
organisations (~10% response
rate)
Centralgovernmentsuppliers22%
NHSsuppliers49%
Localgovernmentsuppliers30%
800 firms in the sample
90% report some form of innovation
67% reported that public
procurement has had an impact on
innovation
25% of the firms attribute all their
innovations to procurement
Influence of public procurement on
innovation
Influence of public procurement on R&D
800 firms in the sample
65% report having invested
in R&D in the last three years
33% report that
procurement led to
additional or renewed
investment in R&D
Public organisations as source of innovation
276
424
325
330
531
540
581
249
256
178
153
178
179
160
188
103
78
89
70
71
45
0% 20% 40% 60% 80% 100%
Our own suppliers (of equipment, materials, services, etc)
Our competitors
Our private sector customers
Our internal R&D department
Changes in government policy and regulation …
Our public sector customers
Changes in the market
Very important Somewhat important Slightly important
Wider effects of public procurement“Innovations that resulted from bidding for or delivering public sector
contracts have subsequently helped us to ….”
Yes
Yes
Yes
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
enable or increase overseas sales(n=315)
increase your sales in the private sector (n=452)*
win other contracts in the public sector (n=500)
* Excludes those organisations who said that virtually all their sales in the last three years have been to the public sector.
….. but which practices and modes of procurement
encourage innovation?
23%
24%
33%
33%
37%
39%
46%
46%
47%
48%
49%
51%
56%
58%
59%
60%
66%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Provisions related to intellectual property
E-auctions
Restricted tender
Non-OJ tender procedure
Private finance initiative
Electronic submission of tenders
Framework agreement
Open competitive tender
Negotiated tender
Incentive contracts such as profit-sharing …
Competitive dialogue
Full life-cycle costing considerations
Emphasis on sustainability criteria
Advanced communication of future needs
Outcome-based specifications
Early interaction with procuring organisation
Innovation requirements in tenders
encouraged innovation (% out of those that experience it)
How frequent are these practices?
18%
10%
36%
55%
61%
6%
21%
28%
48%
15%
37%
33%
31%
23%
24%
33%
46%
46%
48%
49%
51%
56%
58%
59%
60%
66%
Provisions related to intellectual property
E-auctions
Restricted tender
Framework agreement
Open competitive tender
Incentive contracts such as profit-sharing …
Competitive dialogue
Full life-cycle costing considerations
Emphasis on sustainability criteria
Advanced communication of future needs
Outcome-based specifications
Early interaction with procuring organisation
Innovation requirements in tenders
Encouraged innovation if experienced (%) Frequently experienced (%)
The most „innovation friendly‟ practices are also some of the least frequent
What are the main barriers to innovation?
Inadequate management of intellectual property rights
Contracts not large enough
General lack of demand for innovation
Contracts not long enough
Poor management of risk
Low capabilities of procurers
Specifications too prescriptive
Risk aversion of public procurers
Variants not allowed
Lack of interaction with procuring organisations
Too much emphasis on price
Very significant Moderately significant Not at all significant
Conclusion
UK frontrunner for PPI, PCP in Europe– Awareness, concepts, instruments, European involvement
From science driven to (public) demand initiatives
Implementation challenges never tackled– Procurement overloaded with goals
– Agency dispersed, many heterogeneous actors
– No incentives, capacity and capability to change practice on the ground
Financial crisis: turn to efficiency and growth, not linked to PPI
Now agenda back to PCP (InnovateUK)
29/05/2
015
Thank you for your attention
21
CONTACTS
Jakob Edler, Professor of Innovation Policy and Strategy, Executive Director MIoIR
Luke Georghiou, Professor of Science and Technology Policy and Management, Vice-President for
Research and Innovation University of Manchester, [email protected],
Elvira Uyarra, Senior Lecturer, MIoIR, [email protected]
Project: https://underpinn.portals.mbs.ac.uk/
Publications: https://underpinn.portals.mbs.ac.uk/Publications/tabid/1580/language/en-
GB/Default.aspx
Manchester Institute of Innovation Research (MIoIR)
https://research.mbs.ac.uk/innovation/
Manchester Business School ,University of Manchester,
Harold Hankins Building, Manchester, UK M13 9PL
0044 (0) 161 275-0919 (secr. 5924)
Manchester Institute of Innovation Research, Manchester Business School
Annex 1
Additional survey data
Manchester Institute of Innovation Research, Manchester Business School
Type Categories %
Size(employees) Lessthan10 82 10%
Between10-49 297 37%
Between50-250 226 28%
Morethan250 190 24%
Age <5years 32 4.0%
between5-10years 147 18.4%
between10-25years 231 28.9%
between25-50years 117 14.6%
>50years 33 4.1%
Typeoforganisation Private 649 81.1%
Socialenterprise 139 17.4%
Maincategoryofgoods
andservicessupplied
Facilities&Managementservices 91 11%
Healthcare equipment, supplies
andservices
116 15%
Officeequipment&IT 61 8%
Professionalservices 159 20%
Social community care, supplies &
services
133 17%
Other(e.g.education,transport) 54 7%
Works 145 18%
Mainclient NHS 195 24%
LocalGovernment 423 53%
CentralGovernment 121 15%
Profile of respondents
Profile of respondents
sector frequency %
Primary act (Agriculture, hunting and
forestry; fishing; mining) 9 1.13%
Manufacturing 92 11.50%
Electricity, gas and water supply 2 0.25%
Construction 123 15.38%
Wholesale and retail trade 12 1.50%
Hotels and restaurants 4 0.50%
Transport 26 3.25%
Financial intermediation 8 1.00%
Business activities 277 34.63%
Public administration and defence 4 0.50%
Education 25 3.13%
Health and social work 119 14.88%
Other community and social work 52 6.50%
Product innovation (432)
Process innovation (540)
Service innovation (605)
Respondents have
introduced a mix of
product, process
and service
innovations in the
last three years
(N=800)200
73246
62
Suppliers innovate, but it is a very heterogeneous picture - much is hidden
Larger companies slightly more innovative
Service providers more innovative
Product innovation more common among NHS supliers
Influence of public procurement on innovation
800 firms in the sample
90% report some form of innovation
67% reported that public procurement
has had an impact on innovation
25% of the firms attribute all their
innovations to procurement
Influence of public procurement on R&D
800 firms in the sample
65% report having invested
in R&D in the last three years
33% report that procurement
led to additional or renewed
investment in R&D
Annex 2.
Understanding and supporting
procurement of innovation.
Main messages from cases
Manchester Institute of Innovation Research, Manchester Business School
Main Case Studies
Pre-commercial procurement of blood donation chair, NHS
Integrated waste management PFI , Greater Manchester
Authorities (GMWDA)
The procurement of “closed loop” recycled paper, HMRC
Adoption and diffusion of Oesophageal Doppler Monitor, NHS„
Managed Print Services‟, Lancashire County Council, Kirklees
Council and Lincolnshire Hospitals NHS Trust
Some insights into defence procurement and role of SME
Manchester Institute of Innovation Research, Manchester Business School
Asking for something new: Support in a 2 step process
Example: Blood Donor Chair (NHSBT)
No suitable market solution, bespoke design needed, resistance
Two step procedure: (1) prototype, (2) tender
Specialist organisation (National Innovation Centre (NIC)):
– Stakeholder workshop to identify, validate, rank clinical needs
– Check of technical requirements and state of the art
– due diligence, help with IP issues, PCP advice, link to the market
– design competition; prototype selected/tested in-house, learning loops
Project manager: testing phase, business case, link internally/externally
Learning in the buying organisation
– Test environment centre set up to facilitate testing of the
prototype, established test environment for the organisation for future kit
– NIC model used subsequently in NHSBT to procure other equipment
Lead Market potential?
3030Manchester Institute of Innovation Research, Manchester Business School
Asking for something new: Support in a 2 step process
Example: Blood Donor Chair (NHSBT)
3131Manchester Institute of Innovation Research, Manchester Business School
Adopting an innovation.
Intra-organisational change and co-construction.
Example: Adopting Managed Print Service
Efficiency gains through buying printing service package instead of hardware
Public sector was lagging
Radical organisational innovation for the client, large savings made
Snr Mgt support and responsibility, strong motivation
Adaptation / co-generation of the solution
Pilots and pre-contract „flexible‟ period
Longer term, close relationship with supplier (both commit resources)
Joint learning
Client (need audit, change mgt)
Supplier (business models, tailor solution, standardised procedures, new IT and
hardware)
Conducive Frameworks needed (flexibility, relationships)
Trend to commodification and centralisation problematic
Manchester Institute of Innovation Research, Manchester Business School
Asking for something new: Support in a 2 step process
Example: Blood Donor Chair (NHSBT)
No suitable market solution, bespoke design needed, resistance
Two step procedure: (1) prototype, (2) tender
Specialist organisation (National Innovation Centre (NIC)):
– Stakeholder workshop to identify, validate, rank clinical needs
– Check of technical requirements and state of the art
– due diligence, help with IP issues, PCP advice, link to the market
– design competition; prototype selected/tested in-house, learning loops
Project manager: testing phase, business case, link internally/externally
Learning in the buying organisation
– Test environment centre set up to facilitate testing of the
prototype, established test environment for the organisation for future kit
– NIC model used subsequently in NHSBT to procure other equipment
Lead Market potential?
3333Manchester Institute of Innovation Research, Manchester Business School
Nature of innovation
Incremental Radical / disruptive
Buying an
existing
innovation
Asking the
market to
produce
something
new
3434Manchester Institute of Innovation Research, Manchester Business School
Understanding challenges…and the need for policy support
Internal communication and coordination challenge.
Adjustment of user capabilities
Business case: Understanding the reliability and added value of the new solution (assessment of (alternative).
As left, but more basic, plus:
Build up capabilities for the understanding and use of the innovation.
Internal coordination to prepare for change at all levels.
Sound business case (secure financing and reliability)
Learning loops with suppliers and (potentially) with citizens.
Risk management (adoption risks)
As above, plus:
Sophistication in understan-ding one’s (future) need and market options.
Internal coordination challenge to understand and implement the change demanded,
Pro-active interaction with (existing) suppliers to modify
As above and as left, plus
Systematic internal process to formulate need and to feedback on early solutions through all organisational levels;
stronger interaction with market place to communicate iteratively in innovation generation and adaptation process (feedback or even co-generation)
Risk management (generation and adoption risk)
Innovation and Procurement and tight budgets can go together
Do not simply charge procures with innovation policy
But support
– Leadership and local initiative
– Aligned incentives and capabilities:
risk management
long term signals, market intelligence, interaction
organisational change, intra-organisational interaction
– Variety, openness to smaller players
Establish strong supporting / enabling organisations
Re-think standardisation, commodification
Roll out existing instruments
Support, engage and commit other policy domains
General Policy Conclusions
35Manchester Institute of Innovation Research, Manchester Business School
Policy maker in the relevant sectoral department(s):
risk of failure to deliver service, initial costs (acceptance of high entry costs)
Innovation Policy makers:
Who benefits (economic spill over to other countries)
Specialised public procurer:
risk of buying a less certain, more costly solution with no rewards for better service,
capability
Finance ministries, actors responsible for budgets:
costs, failure to appreciate benefits
Internal, administrative end users:
risk of failure to learn and adapt or to manage new interface
Supplier: Market risk –spill over to broader, private market?
Challenge: mis-alignment of risk/reward
36Manchester Institute of Innovation Research, Manchester Business School
(Tsipouri et al 2010)
Policy maker in the relevant sectoral department(s):
risk of failure to deliver service, initial costs (acceptance of high entry costs)
Innovation Policy makers:
Who benefits (economic spill over to other countries)
Specialised public procurer:
risk of buying a less certain, more costly solution with no rewards for better
service, capability
Finance ministries, actors responsible for budgets:
costs, failure to appreciate benefits
Internal, administrative end users:
risk of failure to learn and adapt or to manage new interface
Supplier: Market risk –spill over to broader, private market?
Challenge: mis-alignment of risk/reward
37Manchester Institute of Innovation Research, Manchester Business School
(Tsipouri et al 2010)
Evidence on PCP
PCP evaluation - mainly US SBIR (Rigby 2013)
Domain based approaches (rather than innovation agency)
Many successful technology stories / cases, but take up mixed
Skewed returns (not a surprise)
Employment case not strong, but firm survival increases
Design (of stages, awards, IPR, follow on) important for success
in terms of commercialization of technology
38Manchester Institute of Innovation Research, Manchester Business School
Policy: Challenges and Support instruments I
39
Policy Category Deficiencies addressed Instrument types Examples
Framework
conditions
i) Procurement regulations
driven by competition logic
at expense of innovation
logic.
ii) Requirements for public
tenders unfavourable to
SMEs
i) Introduction of
innovation-friendly
regulations
ii) simplification & easier
access for tender
procedures
2005 change in EU
Directives including
functional specifications,
negotiated procedure etc.
2011 proposal in EU to
introduce innovation
partnerships
Paperless procedures,
electronic portals, targets
for SME share
Organisation &
capabilities
i) Lack of awareness of
innovation potential or
innovation strategy in
organisation
ii) Procurers lack skills in
innovation-friendly
procedures
i) High level strategies to
embed innovation
procurement
ii) Training schemes,
guidelines, good
practice networks
iii) Subsidy for additional
costs of innovation
procurement
UK ministries Innovation
Procurement Plans 09-10
Netherlands PIANOo
support network, EC Lead
Market Initiative networks
of contracting authorities
Finnish agency TEKES
meeting 75% of costs in
planning stage
Source: Georghiou/Edler/Uyarra/Yeow (2013)
Manchester Institute of Innovation Research, Manchester Business School
Policy: Challenges and Support instruments II
40
Policy Category Deficiencies addressed Instrument types Examples
Identification,
specification & signalling of needs
i) Lack of communication
between end users,
commissioning &
procurement function
ii) Lack of knowledge &
organised discourse
about wider possibilities
of supplier‟s innovation potential
i) Pre-commercial
procurement of R&D to
develop & demonstrate
solutions
ii) Innovation platforms to
bring suppliers & users
together; Foresight &
market study
processes; Use of
standards & certification of innovations
i) SBIR (USA, NL &
Australia), SBRI (UK),
PCP EC & Flanders
ii) Innovation Partnerships
& Lead Market Initiative
(EC), Innovation
Platforms (UK,
Flanders); Equipment
catalogues (China to 2011)
Incentivising innovative solutions
i) Risk of lack of take up
of suppliers innovations
ii) Risk aversion by procurers
i) Calls for tender
requiring innovation;
Guaranteed purchase
or certification of
innovation; Guaranteed
price/tariff or price
premium for innovationii) Insurance guarantees
i) UK Forward
Commitment
Procurement; China
innovation catalogues
(to 2011); Renewable
energy premium tariffs
(DE and DK)
ii) Immunity & certification
scheme (Korea)
Source: Georghiou/Edler/Uyarra/Yeow (2013)
Manchester Institute of Innovation Research, Manchester Business School
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