Public Procurement For Innovation

Abstract

The possibilities public procurement offers regarding the stimulation of innovation for the benefit of economic growth and the competitiveness of markets have been increasingly receiving attention over the past two decades. In 2014 a long awaited update of the European directive governing procurement procedures was published. Among these procedures are a distinct set of innovation oriented procedures. Some of these are suitable solely for the procurement of innovations, other also for the procurement highly complex projects. Use of these procedures by governments, often called Public Procurement for Innovation, or PPfI for short, is however hindered by several problems. Due to its novelty and higher risk profile it is being applied very little, leading to a lack of jurisprudence, example projects and practice-oriented research. Compared to the widely used non-innovation oriented procedures, which have been ingrained in public organisations, its application entails a different approach and set of skills, making many civil servants hesitant to apply them. A low capacity for learning of public organisations, especially in project-based organisations, adds to this hesitation. This research aims to improve the performance of project managers and procurement advisors during the preparation phase of the innovation partnership and the competitive dialogue procedure. This is achieved by defining the processes of the preparation phase and identify how these could be optimised towards the achievement of innovation during procurement, resulting in recommendations on the relevance and set up of each process. In order to achieve this objective the following main research question was defined: How could the processes of the preparation phase be optimised for achievement of innovation during procurement, in the case of public authorities procuring for innovation in the physical domain, using the innovation partnership or competitive dialogue procedure?In order to answer this research question, a literature study was performed to clarify relevant concepts, define the preparation phase in processes and define activities for the optimisation of each of these processes. This research found the following 11 processes to be part of the preparation phase: Need & need assessor identification, Need analysis and specification, Market exploration,ConsultationMarket engagement, Partnering, Knowledge & capabilities management, Creation of support, Risk management, Project organising and Process design and conditions.Subsequently, 47 underlying activities aimed at optimising their influence on the achievement of innovation during the tender- and execution phase were derived from the literature. These processes and underlying activities formed a conceptual framework that formed the basis for case study research involving 4 projects and 7 respondents closely involved in these projects, either as procurement advisor or project manager. The case-study findings were subsequently compared to the literature study findings, after which a synthesis of the individual results took place. This resulted in the validation of the 11 processes and a discussion of optimisation of these processes using 34 of the processes found in literature and two new activities derived from the case studies. These are listed in the main text. The literature- and case study findings were used to define a list of general- and process specific recommendations for project managers and procurement advisors of public organisations planning to undertake procurement of product innovations in the physical domain using the innovation partnership or competitive dialogue procedure. The research should be considered along with its context and limitations, discussed in chapter 2, 4 and 8. The recommendations presented below and at the end of this thesis should be considered alongside the discussion of research results presented in chapter 5 as this creates additional insight into the limitations and applicability of the results.The recommendations presented below are therefore possible optimisation strategies for the preparation phase for public organisations with little experience in PPfI, planning to procure innovative solution for which they might use the innovation partnership or competitive dialogue procedure. Based on the research findings, the following general recommendation are given: First, it is recommended to define a tailored approach for each process due to the complexity of innovation oriented procurement and the unique character of projects. In this tailored approach the mutual influences and dependencies should be taken into account and exploited where possible. Secondly, for the underlying activities it is recommended to explore new possibilities and combinations, leading to fit-for-purpose activities that can be carried out for multiple processes. Thirdly, as these procedures and the achievement of innovation are complex and require broad and multidisciplinary skills, it is recommended to perform an assessment of the available internal expertise and the necessary expertise and to seek process assistance early on in the project. Fourthly, where internal knowledge and capabilities are lacking, Early Market Interaction and the help of external experts can be employed to increase the procuring organisations’ understanding of the process and its content. This can be precede any concrete plans for innovation oriented procurement, for instance by having a sit down with well-known or regular suppliers and discuss with them how they think PPfI and the accompanying collaboration can be optimized. And lastly, It is recommended to select a procedure only after sufficient information has been gathered from market parties, experts and internal sources of knowledge and expertise during the need identification, analysis and specification, market exploration and consultation. Furthermore, it is recommended to be restrictive in the application of the innovation partnership and competitive dialogue procedures as they are resource-intensive and require, as this thesis points out, thorough preparation.