Four barriers to innovative public procurement

By Will Green

Barriers to the use of public procurement as means to spark innovation have been highlighted in a UN report.

In the report the UN Economic Commission for Europe (ECE) said public procurement accounted for 10-15% of GDP on average in most countries and “innovation-enhancing procurement” – or IEP – “should be considered as a strategic policy tool”.

The report defined IEP in two ways. Firstly, as “buying the process of innovation – R&D with (partial) outcomes”, in which procurement buys R&D services for products, services or processes that do not yet exist to meet a specified need.

Secondly, as “buying the outcomes of innovation created by others (innovative goods or services)”, in which the buyer acts as an early adopter of a product, service or process that is new to the market and “contains substantially new characteristics”.

“However, procuring innovations that do not yet exist requires specialised tools and processes which are demanding in terms of governance and management capacity in the public sector,” the report said.

The report said IEP required a shift from “defining detailed parameters” to allowing suppliers “the space to propose solutions according to strategic goals”. This change requires flexibility to select bidders based on total cost over the lifecycle of a good or service, rather than lowest upfront cost. Competitive dialogues with industry to discover technological possibilities and “pre-commercial procurement”, in which tenders are issued for R&D that may result in proofs of concept or prototypes, are also needed.

The report said research showed 80% of EU member states supported IEP but it was used in “only a fraction of public procurement”.

“The benefits of IEP and its potential multiplier effect of advantages have not been realised or fully realised because procurement is still broadly considered an administrative function of government,” said the report. “As a result, a large part of public procurement remains very compliance-driven and not very innovative.”

The report said the barriers to IEP were:

1. Leadership

Procurement is considered an “admin function”, while a large part of procurement is “compliance driven and not innovative”.

2. Institutions and governance

The ECE pointed to a lack of a robust legal and regulatory framework on IEP, risk aversion and resistance to change, poor management and coordination, and lack of financial support.

3. Management

The report highlighted difficulties in ensuring a competitive process, poor measuring systems and IT tools, and lack of capacity to measure and monitor performance over the life of the contract.

4. Capacity and skills

There are challenges around lack of administrative capacities, lack of knowledge and specific skills, and difficulty in the management of pre-commercial procurement and competitive dialogues.

The ECE said successful implementation of IEP required adopting a strategic approach, reviewing and aligning legal frameworks and specifications, building capacities, and strengthening cooperation and partnerships.

Supply Management

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