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R&D and Innovation in
public procurement in Europe
Prof. Lena J. TsipouriNational and Kapodistrian University of Athens and CFS
CONFERENCE
How to stimulate Innovation and R&D
through Public Procurement
Reyjkavik, 15 November 2007
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Outline of the presentation
1. Introductory remarks: theory, practice
and methodology
2. The institutional set up in Europe
3. Best, Good (and all range of) practices
4. Lessons learned
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Some basic theoretical issues
• The market is not perfect; there are market failures
• Risk, scale, externalities, appropriability and insufficient interaction are major reasons for market failure
• Lead markets in general and public (technology?) procurement constitute an increasingly investigated instrument to correct market failures
• If not adequately designed and implemented public intervention may substitute market failure with government failure.
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Some practical observations
• The USA and Japan have pursued active
technology procurement policies for decades
(DARPA and MITI/METI)
• In Europe there is increasing interest, rhetoric
and cases of interest but no generalised policy
(and there are good reasons for that)
• In sectoral terms it is mainly transport, ICT,
energy and Green procurement that are
gaining momentum (special case: health
sector)
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Methodological remarks: How to stimulate
Innovation and R&D through Public Procurement
• Stimulate demand for off-the-shelf high
tech products (the market will do the rest;
e.g. Swedish environmentally-friendly
cars)
• Procure technology, not products (users
and producers co-develop a non-proven
technology; this can take the form of
development or adaptation)
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Some basic theoretical issues (2)The increasingly relevant notion of “Lead Markets”
• “Lead market” is a “new” market with potential to expand geographically (and otherwise) and create above-average rents.
• „Lead users‟ play an important and active role not only in “pulling” (demand-pull) innovation but in the innovation process itself.
• Under certain circumstances public sector actors are well placed to play the role of lead users
• One main policy instrument to create lead markets is “technology procurement”, namely public purchasing of good or services not yet available in the markets, whereby the user co-develops the product/service with the producer
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Public Technology Procurement: what does “user-producer interaction” mean
The problems:
• asymmetric information (intended or unintended) and
• a risk to be shared (how?)
Suppliers(Sophisticated?)
Users
Information on needs
Information on technology
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What is technology procurement? A
public policy perspective
Technology procurement is an instrument to promote new technology. Technology procurement can be seen as a complement to market forces. There is a whole series of examples of how technology procurement has given very good results with the assistance of aggregated knowledge and aggregated purchase volumes. Some of the key factors for a successful result of technology procurement are: choice of right technology and market for the project; well conducted preparations; a well conducted risk analysis; good project management; an implementing organisation that has high credibility and works actively to build trust; and an implementing organisation and buyer group that show commitment throughout the technology procurement process. (NUTEK)
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The institutional set up in Europe
• Public procurement constitutes 14-16% of
European GDP, hence it has a huge potential of
intervention
• Competition rules are the cornerstone of public
policy: interventions raising suspicions of
protectionism are prohibited
• Procurement is governed by European
Directives, and the member states have to comply
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The institutional set up in Europe (2)
The basic Directives (2004 amendments): Basic efficiency and trans-border competition argument, but specification of five different procedures
• the open procedure,
• the restricted procedure,
• the competitive dialogue,
• the negotiated procedure and
• the design contest.
The “exceptions”• Energy Services directive (the ESCO Directive)
• and the Ecodesign Directive
The Lisbon Process (2000)
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The institutional set up in Europe (3): country profiles regarding technology procurement
In the UK policies are more explicit and
actively pursed
In the Nordic countries there is tradition and
culture enabling technology procurement
In come other countries there are individual
efforts to enhance it (Italy, Belgium,
Ireland, the Netherlands, Germany)
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The institutional set up in Europe (4): Selected drivers
• There are apparently some actors or lobby groups, who are important “innovative procurement drivers”, such as the industry and the Economic Chamber in Austria or a special Council in the Netherlands, Danish Society of Engineers, German “voices from industry”
• The relevant role of professionalism, skills and training; formal training is now introduced in some countries
• Provisions for exceptions in the standard procedures related to technology, management or otherwise
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The institutional set up in Europe (5): Results are independent of the mode of organisation
Centralised (Austria, Germany, France, Denmark, Spain. Greece)
Decentralised (Netherlands, Finland, Norway, Sweden, Belgium, Ireland)
Mixed (USA, UK)
But in fact this feature is irrelevant, because economies of scale and innovative features can appear (or not) in both systems through cooperations and coordination
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Some practices
Individual European Practices
• Trains: TGV, AGV, Pendolino, X2000
• High Voltage Direct Current (how ASEA became world leader)
• Telecommunications (Nokia, Swedish cluster)
Transborder Cooperation
• Galileo (?)
• GSM (Standard setting rather than procurement)
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More practices
• Germany: New lighting systems: Modern technologies for energy efficiency
• City of Heidelberg: Innovative telecommunication equipment of a municipality to increase service quality and effectiveness
• Austria: Electronic File Management [ELAK]
• Norway: Procurement of Maritime Radio System
• Regional Authority for the Zaanstreek, the Netherlands: set of functional definitions for the service and a general cost-cutting target
• UK: Procurement of Variable Message Signage for UK Motorway Network
• Italy, Consip: Energy Saving Procurement
• The Netherlands: Procurement of Public Key Infrastructure
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Interesting practices
• OGC is concerned to make principal financial officers aware of the possible alternatives to public procurement
• In Ireland the Government Supplies Agency useselaborate criteria for selecting firms that could bemodified to include innovation considerations
• Austria: "Check it" – Kriterienkatalog zur umweltfreundlichen Beschaffung (2000) (criteria for sustainable procurement)
• The Netherlands are now working on new public procurement legislation that will go beyond European directives
• Sweden: green public procurement (GPP): sustainable production and business opportunities from future market demands for sustainable products, techniques and production processes (EKU tool); energy saving in cooperation with the IAEA
• The French Minitel (?).
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Can the overall impact be measured?Major difficulties compared to the classical economic efficiency arguments
• Employment creation?
• Profit/income generation?
• Capacity building?
• Competitiveness of individual firms?
• Competitiveness of
clusters/regions/countries?
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Lessons learned: public technology
procurement may work
The issue:
• Raise ambitions
• Raise the probability of success
Information on needs
Information on technology
Suppliers with long term
strategies
Suppliers investing less
Sophisticated persistent
buyers
The others
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Lessons learnedBarriers
• Embedded culture: Procure the products
which cover demand most economically
• Legal framework constraints, or fear of
legal constraints
• Risk of formal filing of protest
• The sanction/reward model for the public
service
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Lessons learned: raise the probability of success
with five typical stages of technology procurement
1. Identifying the requirements and user
readiness
2. Market intelligence
3. Tendering process
4. Assessing tenders and awarding
contracts
5. Managing contract delivery
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Lessons learned
1. Design carefully all five stages of an
effective technology procurement
2. Create a culture otherwise public
servants see major counterincentives in it
3. Train, train, train all stakeholders to see
the benefits and dangers of public
technology procurement
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Lessons learnedSome general conclusions
• The issue of innovative procurement is maturing in many European countries and beyond
• There is no correlation between an explicit statement of innovation and policy effectiveness (e.g. Japan, Norway)
• Political commitment, professional training and preferably lobbying from the industry are important ingredients of success
• Innovative procurement is not inevitably related to protectionism and international collaborations can enhance it.
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Some concrete recommendations
• To spread technology procurement as a working method, experience-broadening and knowledge-building seminars should be held for procurement officers and their managers.
• These seminars should, for example, deal with technology procurement as an instrument and working method and give examples of good and bad technology procurements.
• Combine instruments: For example use research funds for the drafting of specifications
• Describe and market the advantages for the manufacturers
• Check potential for buyers‟ cooperation
