Public procurement for innovative solutions: Overcoming barriers and accelerating innovation

Public procurement of innovative solutions (PPI) is a powerful tool that enables the public sector to fully leverage its purchasing power to support the widespread adoption of innovative solutions in the market. PPI has the potential to create sufficient demand to stimulate industry investment in innovative solutions. For example, the city of Barcelona used PPI to purchase smart street lighting, which led to significant energy savings, among other benefits.

While traditional public procurement focuses on purchasing existing products or technologies, the aim of PPI is to support the development of solutions that are not commonly available on the market. However, this approach requires a willingness to accept the higher risk associated with investing in innovation and to accept a process that is often more complex and may include phases such as research, pilot testing, and gradual deployment.

The public sector acts as a cumulative stimulator and adopter of innovative solutions that are not yet available on a large commercial basis by bringing together several institutions and jointly committing to purchase a certain volume of an (innovative) product or service. This creates a "critical mass of purchasing power" on the demand side, enabling the innovation to be introduced to the market with acceptable price and quality requirements. For example, several European countries have joined forces to purchase innovative solutions for healthcare facilities as part of the EU Health Procurement initiative. This example shows how cooperation between different countries can create strong demand that can motivate industry to expand production.

Another necessity is timely notification of the intention or need to procure the required functionality with predefined price/quality requirements by a certain date. For example, the Dutch government used this approach to purchase innovative solutions for sustainable transport. Timely notification of needs motivates industry to develop innovative solutions.

The third step is the actual implementation of the public contract for an innovative solution through one of the possible procedures (e.g., direct negotiation, competitive dialogue, etc.), as in the case of the city of Helsinki, which used this approach to purchase its public transport system.

PPI thus complements pre-commercial public procurement (PCP – more on that another time 🙂 because it enables the deployment of solutions on a larger scale that were developed in small quantities in the previous PCP. PPI can be used for solutions from research and development, but also for organizational or process innovations. For example, the Finnish government supported innovation outside traditional research in a project for digital governments.

Creating strong and stable demand through government procurement has significant advantages:

✔ modernizes public services with higher quality and more efficient solutions

✔ supports a new market for innovative solutions

✔ helps innovative companies grow

A clear and environmentally friendly example of good practice can be seen in the Swedish government, which has decided to support and develop the market for sustainable building materials.

Main challenges and obstacles to wider application of PPI:

1. Lack of knowledge and skills: Public authorities often lack the knowledge and skills needed to use PPI effectively. This includes, among other things, a lack of knowledge about available innovative solutions, a lack of risk management skills, and a lack of experience with complex procurement processes.

2. Risk of failure: As mentioned above, PPIs carry a higher risk of failure than traditional public procurement. This may discourage public authorities from using PPIs, especially if they do not have sufficient resources or capacity to manage these risks.

3. Regulatory barriers: In some cases, regulatory barriers may hinder the use of PPIs. This may include strict public procurement requirements that do not allow sufficient flexibility for innovative purchases.

4. Lack of cooperation: Successful PPI often requires cooperation between different public authorities and with the private sector. This can be challenging if there are no appropriate mechanisms for such cooperation.

Do you find this challenge difficult?

The European Innovation-Friendly Public Procurement Initiative provides free technical and legal assistance to individual contracting authorities in implementing PCP and PPI. Follow the example of the city of Madrid, which took advantage of the technical and legal support offered to purchase innovative solutions for its public transport system.

The potential of PPI in sustainable and socially responsible purchasing

Sustainable public procurement has enormous potential to promote sustainable development. (I hope I've kept you reading this far :). Like Sweden, the Finnish government has used its purchasing power to promote the market for sustainable building materials.

Socially responsible public procurement also offers enormous potential to promote social development. Public authorities can use their purchasing power to promote ethical products and services and use public procurement to create jobs and promote social inclusion. For example, the European Commission has used its purchasing power to promote and purchase socially responsible products and services that promote the social inclusion of minorities.

I believe that at the next FSA awards ceremony, we will recognize projects from our own backyard…🙏