Innovation in procurement
Innovation in the public sector is essential for tackling the societal challenges of today and tomorrow. There is every opportunity to use public procurement as a tool to promote development and innovation. By buying, implementing and making use of innovative solutions in public organisations, we can offer our citizens better services, public utilities and benefits.
Regarding innovation in procurement, it is important to be open minded and listen to solutions the market suggests, linked to the needs of the procuring organisation. Innovation may be about a new good, service or process, new ways to organise a business or organisation, or external relations. It might involve solutions that lead to improvements, gradual change or transformation within a line of business. Moreover, an innovation can be a product or service that cuts across one or several sectors of industries.
Tax revenue is used efficiently when innovative solutions are promoted in public procurements. In this way, we can face society’s challenges and promote the growth of competitive, innovative businesses
What is innovation procurement?
The term innovation in innovation procurement does not refer to procuring innovations. This is not possible, as we can never know whether a new solution is an innovation until it has been successfully used at the end of the process. Instead, innovation procurement is about the intent: that a procuring organisation, in its purchasing process, promotes innovation by requesting or permitting new solutions.
The term, innovation procurement stems from the Swedish government’s official report, Innovationsupphandling (Innovation Procurement)(SOU 2010:56):
"Innovation procurement: procurement that promotes development and the introduction of innovative and viable solutions, innovations."
Public organisations purchase goods, services and construction contracts to be able to produce and offer public utilities to the citizens. Sometimes, the market cannot effectively meet society’s needs; solutions are not sufficiently effective, too low in quality, too expensive, or do not exist. In such instances, there is good reason to promote innovation in a procurement.
Innovation procurement is not a particular method or procedure. Instead, it is a way of promoting development in and through public procurement. This means that innovation procurements follow the same process as any other public procurement, with all the choices available. The conditions are not different, but certain aspects need to be emphasized.
When should innovation procurement be used?
Innovation procurement can be used when a procuring organisation has a need that the market can offer, but where the procuring organisation and suppliers have ideas for improvements that may lead to more developed solutions. It might involve entirely new processes or business models. It might also be relevant when a particular need cannot be met by the market, and it takes development and maybe even research, for the suppliers to produce a new good or service.
There are situations where innovation procurement brings great benefits, when the market or the organisation changes or where there is potential for development. Examples include:
- an industry with a high rate of development, such as medical technology or IT
- there is need for transformative and sustainable environmental solutions
- there is a major economic and environmental impact on the product’s life cycle
- the procurement has the potential to improve results in the organisation’s core business, for example concerning technology, health and safety, work processes, finance and end consumer
- there is a need to manage rapidly changing societal challenges, such as demographic changes, climate change, urbanisation and a shrinking tax base.
How do you conduct an innovation procurement?
An innovation procurement will take longer and require more resources than a procurement where the product/service is already available on the market. The biggest difference is that you not only need to consider the procurement process, but also the innovation or organisational development perspective. It requires substantial preparation and sometimes extensive pre-study studies. It is also unavoidable that one or more people in the organisation will be affected when something new and innovative is implemented. We recommend applying for external project funding in order to be able to prepare thoroughly before and in the procurement.
The focus of the preparation before a procurement should be on conducting a substantial market analysis, as it is essential to find out whether what you want to buy is already available on the market. Naturally, the market analysis is based on a need and a challenge that has been drawn up by the procuring organisation. The need can be more or less precise or specified and is sometimes phrased as a problem: what is it we want to solve and what do we want to achieve?
A dialogue before the procurement with stakeholders in the market, potential suppliers or industry organisations is essential to gain more information about how the needs of the procuring organisation can be met. A tip is to have a look in the PRV patent database (Swedish Patent and Registration Office), in order to find information about patents in Sweden and other countries.
Setting functional requirements in procurement
Another important aspect for procuring a new solution is to use functional requirements in the procurement process. It is about setting requirements for what needs to be achieved, rather than how. This enables the suppliers to submit proposals for different solutions to the needs and challenges you have.
Choice of procedure
When you want to procure a new solution it is perfectly possible to use an open procedure and set functional requirements, which encourages innovation. There are some considerations to be made when choosing the procedure. If, during the procurement process, you want to negotiate customizations and price with potential suppliers, or conduct a step-by-step development process, you can choose a two-step or multi-step procedure: competitive dialogue, negotiated procedure, innovation partnership. In rapidly developing markets, procuring organisations can make use of dynamic purchasing system to effectively purchase the latest solutions and products
Innovation procurement within the EU in Procure2Innovate
The National Procurement Agency together with the Legal, Financial and Administrative Services Agency (Kammarkollegiet) constitute a competence centre for innovation procurement within the scope of the EU project, Procure2Innovate. The project runs for four years, until 2021.
The idea is that the project will lead to a network of competence centers for innovation procurement in different EU countries. The purpose of the project is to exchange information and experience about how to support and promote innovation procurement in EU. The project is also about building competence centres in five EU countries, and to develop and enhance the efforts in five EU countries that already have established competence centres.
Sweden is one of the five countries that has an established competence center in innovation procurement. Other countries are the Netherlands, Spain, Germany and Austria. The five countries that will start competence centers are Estonia, Greece, Ireland, Italy and Portugal.
Every year, an established competence center collaborates with a new competence center. In 2018, the focus has been on sharing experiences. In the coming years, the plan is for the countries to test each other's ways of working with support for innovation procurement.
Gradually, more competence centers will join the project. To date, Lithuania and the Finnish Competence Center have joined Procure2Innovate.