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Buying innovation in the public sector

Public sector buyers have to contend with a range of competing priorities, whilst managing the demands of stakeholders, impossible deadlines and opaque governance processes. And that's before we start on the dark art of the public procurement regulations. 

All of this must be done whilst ensuring value for money for the taxpayer.

Against a background of intense external scrutiny and a complex legal system, it's not difficult to imagine why there could be a temptation to design procurement exercises with a nod towards the tried and tested. Not least to avoid a potential legal challenge if it goes awry.

So, is there any room to exploit the significant spending power of the public sector to drive innovation?

Public procurement procedures

By far the simplest and most common approach to public sector tendering is in the use of either the 'open' or 'restricted' procedures. These procurement procedures require bidders to submit a written response to a written document, but do not afford an opportunity to discuss the bidders’ response. It is at this point we must question how innovative an approach is likely to be without having had the opportunity to engage in a meaningful way with your suppliers. These procedures do somewhat bolster the allegation of rigidity in the regulations, however there are still things that can be done even here (see Opportunities below).

Less prevalent are the 'competitive dialogue' (CD) procedure and 'competitive procedure with negotiation' (CPN). Both of these permit a level of discussion with bidders within certain parameters. Like the open and restricted procedures, they still require the upfront documentation of the requirements and the mechanism by which the bids will be evaluated. However, they do permit a level of flexibility in approach and help the contracting authority to gain a better understanding of the solutions being proposed.  

Behind in popularity again is the (relatively) new 'innovation partnership' (IP) procedure. This procedure is somewhat of a unicorn in the realms of public procurement, in that it is seldom seen in the wild. It does expressly permit the authority to "identify the need for an innovative product, service or works that cannot be met by purchasing products, services or works already available on the market". Uniquely, this procedure permits the contracting authority to contract with multiple partners and permits the requirements to be performed in stages under a single procurement. With increased levels of adoption, this procedure provides a significant opportunity to drive innovation in the public sector.

Barriers

Given the range of different procedural options available to the buyer, why is so much buying activity undertaken using the least flexible procedures? The answer is simple: time and money. Where the open and restricted procedures are used, the process can be conducted quickly and efficiently without the need for complex negotiations and governance processes. The CD, CPN and IP procedures are very effective in procuring optimised solutions to even the most complex requirements, but they are labour intensive and require investment from both the authority and the bidders.

Opportunities

Over the last few decades, we have seen successive reports stating the importance of contracting authorities embedding the power of innovation into their procurement practices, to ensure that public services are not left behind. However, the counter to this is the perceived inflexibility of the Public Contract Regulations. It is true that the regulations are stringent, but much of the inflexibility is in the application rather than the design.

There are a number of things a buyer can do, irrespective of the procedure, to reward innovative solutions:

Engage the market

Don't rely on only a Prior Information Notice (PIN) to attract the market to your procurements. This is a tried and tested (but not foolproof) way of buying where there is already a mature marketplace used to dealing with the public sector. But given that SMEs are a significant driving force for innovation, this approach is not going to necessarily attract the most innovative suppliers. Don't expect the most innovative solution to land on your lap; you need to go out there and let them know you're looking.

Output or outcome based specifications

Where it's appropriate to do so, this should be a given. It's easier to evaluate the presence of a known set of inputs than giving suppliers free-reign to show what they can do for you, but allowing for flexibility generates innovative approaches.

Evaluation matrices

When used in conjunction with a solid output specification, evaluation matrices bespoked to the questions allow the bidders to stand out in terms of innovation. Not only does it make your evaluators' lives easier, it allows you to reward innovation where it counts.

Variant bids

If you think that permitting variant bids adds complexity, you are right. However, when used in conjunction with output specifications and bespoke evaluation matrices, innovation can be rewarded irrespective of the procedure chosen.

Proof of concept vs. proof of solution

Don't confuse proof of concept with proof of solution. If you go to the market with a requirements incorporating a proof of concept, this must be supplier agnostic. Incorporating a proof of concept is an excellent way of buying innovation, but it is a sure-fire way of inviting a legal challenge if this wasn't allowed for at the very beginning.

Conclusion

The regulations don't necessarily help in buying innovative solutions, but it's possible to buy innovation compliantly. Innovation is happening in every marketplace, every day, everywhere. It's incumbent upon us all to take note and consider how we can innovate in our approach. Our politicians demand it, our customers expect it, and we will all benefit when we get it right.

Iain C. Steel, chief procurement services officer and Caroline Ramsay, partner and a renowned expert in public procurement and state aid law at TLT

This article originally appeared in Open Access Government 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2020. Specific advice should be sought for specific cases. For more information see our terms and conditions.

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