Home Sponsored Feature How to procure innovation

How to procure innovation

Stuart Cairns, Claire Gamage & Chris Murray, of law firm Bird & Bird, encourage the public sector to be bold to boost innovation

Government is regularly criticised for not doing enough to encourage innovation when procuring contracts. Often the procurement rules get the blame as being bureaucratic and cumbersome and a barrier to encouraging new solutions. 

We think this criticism is unfair and indeed we believe that the public sector could be bolder in the way it approaches procurement to ensure that innovation can be introduced across a wide range of government services.  

What are the rules? 

Public authorities are required to follow procurement rules when awarding contracts above a certain financial threshold. These rules, principally contained in the Public Contracts Regulations 2015 (PCR), aim to ensure that procurement markets across the EU are opened up to competition which is transparent, non-discriminatory and affords equal treatment to all bidders irrespective of where they are established. 

The risks of getting procurement wrong can be severe, with high-profile court proceedings and substantial damages payments being made. It is therefore fair to say that some authorities take an overly cautious approach to compliance, using the rules as a reason for rejecting more innovative proposals.  

How can the rules encourage innovation? 

There are a number of ways that government can achieve innovation through the procurement rules. We’ve highlighted three specific examples which are all expressly provided for in the law. 

Early market engagement  

This is not new. Practitioners have long advocated the use of early engagement, particularly where the requirement is unknown or the market is untested. However, before the introduction of the PCR, this was not officially sanctioned by law. That has changed, and it’s clear that many more authorities are using this type of interaction to shape procurement exercises. 

That said, it doesn’t yet appear that there is adequate and sufficiently targeted engagement aimed at encouraging innovative solutions to important problems. In many instances, early market consultations are used as a tick-box exercise allowing the authority to justify internally that its process was robust, despite the fact that the authority has more often than not pre-judged the outcome.

This is unfortunate, but can be easily changed with focus and preparation. Authorities should consult with the market much earlier in the process allowing time to genuinely consider the feedback received so that this can be built into the subsequent procurement.

Encouraging greater collaboration

Innovation is normally best delivered by new market entrants – startups and disrupters – who don’t already have experience of working with the public sector. These organisations struggle to respond to complex and lengthy invitations to tenders and requests for proposals and may not even be able to comply with the experience and financial standing criteria to get to the tender stage in the first place. 

The procurement rules specifically permit group submissions and offer authorities flexibility to accommodate collaborative arrangements. As such, authorities can craft their selection questionnaires to make it clear that multi-party bidders would be welcome, particularly where members of a consortium are SMEs.  

Use of more flexible procurement procedures, including innovation partnerships

The PCRs set out five procurement procedures which an authority is permitted to use. Regrettably, some authorities, as a matter of policy, refuse to use anything other than the simplest ‘open’ and ‘restricted’ procedures. These are heavily compliance-driven and give next to no flexibility to an authority looking to do things differently. 

‘Competitive dialogue’ and ‘competitive procedure with negotiation’, as their names suggest, allow parties to discuss aspects of the procurement, including the technical requirements, proposed financial make-up of the arrangement and contractual provisions. Given that authorities can’t describe what they don’t know exists, innovation can only really be delivered through one of these more flexible procedures. The public sector should become more comfortable in using them to allow a meaningful discussion with bidders to take place on what their “requirement” actually is and what potential solutions might be available. 

But the clearest invitation yet to the public sector that innovation should be encouraged through the procurement rules was the introduction of ‘innovation partnerships’ (“IP”) in the PCR. IP offers even greater flexibility to procuring authorities and sets up a procedural framework within which innovative solutions can be researched, developed, prototyped and rolled out all within a single procurement process. IP allows authorities to shortlist a number of potential partners (including on the basis of any research and development-specific experience), engage in negotiations with those potential partners to identify the organisations with the best potential solutions and then the authority can enter into one or more IPs. Once the parties are in contract, the IP can be staged and the authority can agree to remunerate each partner for each stage in the process. 

The added advantage to the public sector of IP is that the authority may be able to share the commercial benefits of any new product/service which is developed. Obviously, this would be subject to negotiation between the partners, but the process could see the greater commercialisation of the public sector with government reaping financial rewards if the solution turns out to be a success.    

The UK was the first EU member state to introduce this new procurement procedure back in February 2015; however, since then only 14 such procurements have been undertaken in the UK. This may be down to the fact that the process itself is still relatively unknown with little legal and practical guidance on its use, but given the procedure’s obvious advantages that ought not to get in the way of bold authorities seeking to deliver innovation in an ever-changing world.   

Conclusion 

Public sector procurement on the whole is certainly better than the negative press attention that it sometimes attracts; but more can be done to encourage innovation and help new entrants access public markets. Some of the suggestions in this article are quick wins (e.g. encouraging collaboration at the selection stage) whilst others will take greater commitment both politically and from a resource perspective. However, there is real merit in using these legal techniques to drive an innovation agenda and bring public procurement into a truly modern age.

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