Supply Side
Innovation in Public Procurement : What Are the Challenges?

One of the keynote speeches at the recent e-public procurement conference in Porto (see picture) came from Maria Manuel Leitao, a Professor at the Universidade de Coimbra in Portugal, looking at innovation in public procurement. Innovation can address demand side issues (such as tools for citizens), or support the supply side (tools for public servants), or bridge the gap between the two. She posed three questions:

1. Why should the public sector be innovative?

2. How can the public sector be innovative?

3. What are the impacts on public procurement?

Leitao was involved in the Mayors Challenge, supported by Bloomberg, which looked at challenges for large towns and cities across Europe across five core themes including civic engagement, health and wellbeing, and environment. There were some 150 submissions – so what are the commonalities from the entries?

Almost all were digital in some sense, she said, from Kirklees in the UK with their “sharing economy” work, to Stockholm helping citizens to calculate their carbon footprint. There was also a clear sense of the public sector needing to do more with less. Governments need to prove they are getting value and doing better. Citizens have higher expectations, yet the pressure on health costs with an ageing population means savings must be made in other areas.

That suggests a need for radical disruptive innovation – e.g. integrating health and social care, and means public employees need to be able and willing to test ideas. But how can this happen? It needs political will, and there will also be technological drivers and facilitators. e.g. the emerging “Internet of Things”.

We need more creative approaches, Leitao told the audience – when she has visited labs, such as Nesta in the UK, she was impressed with the cross pollination achieved by getting teams together made up of different disciplines, with designers, psychologists and others all working on public sector innovation. We also need to experiment before scaling. But governments don’t find that easy, as they “work by law”- generally the whole country makes a change at once. So some different approaches will be needed.

For example, governments might introduce a “right to challenge” – schools or local government bodies could apply for an exemption from existing rules or regulations in order to try new approaches. Incentives can also be used, such as angel funds, specific training, or awards. This all needs an open and collaborative approach – often it is important to have both internal collaboration within organisations, and between public authorities and external bodies.

Bit what about the impact on public procurement? Leitao acknowledged that contracting to achieve innovative solutions can increase the risk for the buying organisation. But there are steps that can help to reduce the risk.

  1. Use models that share risk and reward between the participants – for example, e.g. social impact bonds can spread the financial risk (and reward).
  2. Develop a collaborative approach before the “go to market phase” (but some issues have to be handled carefully, such as protecting the secrecy of new ideas from the private sector). But the public sector wants to know what will work before investing too much.

Finally, Leitao commented that the “innovation partnership” procedure defined in the new EU directives may not offer the right solution. In her view it “does not fit with how innovation works in practice”. It’s focus on working with chosen single firms does not fit the “collaborative networks” model which seems to deliver better results in practice.