Public Procurement of Innovative Solutions: Removing 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 broad market adoption of innovation. PPI can generate sufficiently strong demand to spur industry investment in new solutions. For example, the city of Barcelona used PPI to purchase smart street lighting, which led, among other things, to significant energy savings.

Whereas traditional public procurement focuses on buying products or technologies that already exist, the aim of PPI is to support the development of solutions that are not yet commonly available on the market. This approach requires a willingness to accept higher risk tied to investing in innovation and to work with a more complex process—often including research, pilot testing, and phased deployment.

The public sector acts as a cumulative initiator and purchaser of innovative solutions that are not yet deployed at scale: several institutions join forces and collectively commit to purchase a defined volume of an (innovative) product or service. This creates a “critical mass of purchasing power” on the demand side, enabling the innovation to be brought to market under acceptable price and quality conditions. For instance, several European countries teamed up to procure innovative solutions for healthcare facilities within the EU Health Procurement initiative—showing how cross-border collaboration can create strong demand that motivates industry to scale up production.

Another essential step is early publication of an intention or need to acquire the required functionality—with predefined price/quality requirements and a clear deadline. The government of the Netherlands, for example, used this approach to procure innovative solutions for sustainable transport; early notice motivated industry to invest in development.

The third step is to carry out the PPI itself using an appropriate procedure (e.g., negotiated procedure without prior publication, competitive dialogue, etc.). Helsinki, for example, applied this approach when procuring its public transport system.

PPI thus complements Pre-Commercial Procurement (PCP—more on that another time :)), because it enables large-scale deployment of solutions that were developed on a small scale under PCP. PPI can be used for outcomes of research and development as well as for organizational or process innovations. For example, the government of Finland supported innovations beyond traditional research in digital-government projects.

Building Strong and Stable Demand Through PPI Brings Clear Benefits:

✔ Modernization of public services with higher quality and more efficient solutions
✔ Development of a new market for innovative solutions
✔ Support for the growth of innovative companies

A clear—and “green”—example of good practice is Sweden’s decision to support and develop the market for sustainable construction materials.

Main Challenges and Barriers to Wider Use of PPI

1.Lack of knowledge and skills: Public authorities often lack the know-how needed to use PPI effectively—information about available innovative solutions, risk-management skills, and experience with complex procurement processes.

2.Risk of failure: As noted, PPI carries a higher risk of failure than traditional procurement, which may discourage authorities from using it—especially where resources and capacity for risk management are limited.

3.Regulatory barriers: In some cases, regulatory requirements for public procurement may not provide the flexibility needed for innovative purchases.

4.Insufficient cooperation: Successful PPI often requires coordination across public bodies and with the private sector; without suitable mechanisms, this is difficult to achieve.

Does this feel daunting?

The European initiative supporting innovative public procurement offers free technical and legal assistance to individual contracting authorities implementing PCP and PPI. Madrid, for example, used such support to procure innovations for its public transport system.

The Potential of PPI in Sustainable and Socially Responsible Procurement

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

Socially responsible public procurement likewise offers significant potential for social development. Public authorities can use their purchasing power to support ethical products and services and to foster job creation and social inclusion. For instance, the European Commission has used its purchasing power to support and buy socially responsible products and services that promote the inclusion of minorities.

I believe that at the next FSA awards we’ll be recognizing projects from our own backyard as well… 🙏