Public Procurement of Innovation Impressions from the UK case€¦ · Public Procurement of...

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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015

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

29/05/2

015

PPI in practice – Survey Results

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015

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


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

, [email protected],

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)


mailto:[email protected]



https://underpinn.portals.mbs.ac.uk/

https://underpinn.portals.mbs.ac.uk/

https://underpinn.portals.mbs.ac.uk/Publications/tabid/1580/language/en-GB/Default.aspx








Annex 1

Additional survey data


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%



>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


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


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


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


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




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




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?


Nature of innovation

Incremental Radical / disruptive

Buying an

existing

innovation

Asking the

market to

produce

something

new


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


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


(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


(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


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)


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)


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