One of the more interesting new ideas in the 2014 latest EU procurement directives is the “Innovation Partnerships” procedure, which provides a relatively flexible route for the contracting authority to work with a supplier or suppliers to develop innovative goods, services and works. The directives are being transposed into national legislation in most countries now, and some will certainly try to give more detail on how they see this procedure being used.
As Abby Semple says in her recent book, (reviewed here), A Practical Guide to Public Procurement, “It is an application of the competitive procedure with negotiation to set up a partnership with one or several operators, with additional rules regarding the structure and phasing of contracts”.
Innovation partnerships allow for a phased engagement with suppliers, potentially with payment for different stages or deliverables. The contracting authority can start with multiple “suppliers” and narrow that down based on performance and progress towards the development of the “innovation”. The initial work might turn into a prototype or a pilot phase of work, and eventually into a real, live delivery contract. Indeed, that is an attraction of the procedure; the development phase can lead to a meaningful contract without the need for further competition once the innovation is proven.
We saw a real life possibility for the procedure last week when talking to a UK government executive. He is responsible for managing a contract which is unusual in some aspects. The “supplier” is actually a charitable (third sector) organisation, which was set up specifically to develop an idea and then deliver it, using public money. But this is a unique activity – it is something where the public sector is the only “buyer” (a monopsony). So there was no existing market, which means the current supplier is a de facto monopoly, and there is little to tempt others into the market. Incidentally, a monopsony buyer facing a monopoly supplier brings some interesting dynamics in any case.
Now that incumbent organisation is doing a very good job, by all accounts, so there is not great pressure at the moment to change the situation. In any case, how can another supplier enter the market, when the existing one has 100% of that market?
But the executive concerned was thinking like a good contract manager, and was considering both the risk and contingency situation (what would happen if something went wrong with the current provider), and the importance of developing some sort of competition. If nothing else, that should keep the incumbent “on their toes”. But how can other suppliers be encouraged to enter the market in some sense when there is no immediate business for them and even future prospects are uncertain?
Our conversation turned to Innovation Partnerships. If more suppliers are to get involved, it would be useful for them to try approaches that are somewhat different to the incumbent. It makes sense for the new organisations to seek and develop innovation and innovative ideas. So the Innovation Partnership route may give the opportunity for the contracting authority to fund some different approaches – using relatively small amounts of money given this is speculative work. If a number of options are pursued, that could then be narrowed down as the ideas are developed.
With some luck, that might all mean that in two or three years time, the best of the new organisations and ideas could perhaps be tried on a pilot basis, without the need for another lengthy procurement process. Not only does this potentially lead to innovation, it would mean that there is some other supplier in the market (at least in the development phase), so that if there was a problem with the current monopoly supplier, the authority is not starting absolutely from scratch in terms of finding another provider.
Now there are some drawbacks and issues to consider with Innovation Partnerships. As Semple says, “it may still prove difficult to define requirements and select appropriate partners at the outset for what will often be long-term projects …”
Other issues to consider include intellectual property ownership rights and state aid rules. Our two public procurement legal heroes, Pedro Telles and Albert Sánchez Graells, who are blogging about every UK regulation (closely related to the directives of course) have expressed some doubts and concerns about such partnerships (their material is well worth reading here and here).
However, although the new procedure may always be of minority interest, the example above might just be the sort of area where they could bring real value. But what do you think? And we are particularly interested to feature any real-life examples of Innovation Partnerships once contracting authorities get to grips with just how they might work!