Fostering Innovation Through Public Procurement

This report examines how public procurement in Northern Ireland can better encourage innovation – the creation of new processes, products, ideas and services.

Introduction

This study has focused on:

1. The extent to which public procurement policy and practice in Northern Ireland encourages innovation; and
2. The proposal of recommendations for improvement.

The study has involved a combination of:

• Desk research – a review of published work on fostering innovation through public procurement: both the successes and the barriers.
• Interviews, a survey of suppliers and in-depth focus group discussions with public sector buyers and the supplier base:
  • To gather views and experiences of both the public sector and the supplier base on how well innovation is encouraged through public procurement.
  • To explore the barriers faced by both buyers and suppliers in public procurement of innovation.
  • To gather opinion on how barriers might be overcome, and how the public sector might better foster innovation through procurement.
• The development of case studies on how public procurement has encouraged innovative products and services.

Key Findings

The research highlights a number of important issues:

1. While there are a number of successful initiatives in Northern Ireland which encourage innovation, the procurement processes available under the EU Procurement Directive, which can facilitate the procurement of innovative products and services, are not widely used by Northern Ireland public sector bodies.
2. These can be lengthy and costly processes and there is the perception within the public sector that these processes carry a higher risk of legal challenge from suppliers than the standard procurement procedures.
3. The public sector buyers interviewed experience a number of barriers to procuring innovative products and services. The most critical is the risk of legal challenge by a supplier and the financial and professional implications of this. This threat has largely led to public sector buyers choosing more structured procurement procedures and setting restrictive tender specifications, which in turn limit a supplier’s ability to offer more innovative products and services.
4. The supplier base are committed to offering innovative products and services to the public sector but they too are experiencing barriers. The most critical barriers faced by suppliers are restrictive tender specifications and the lack of pre-procurement engagement with buyers.

While these are the most critical barriers faced by the buyers and suppliers involved in this study, there are a number of other barriers identified through the research and which must be addressed:

• Additional Buyer Barriers
  • A lack of pre-procurement market engagement with suppliers
  • A lack of buy-in from commissioners
• Additional Supplier Barriers
  • A lack of demand for innovative products and services in the public sector
  • A lack of public sector knowledge and experience of specific industries
  • Inadequate consideration of whole-life costs
  • A lack of cross-departmental budget collaboration

The best practice examples reviewed as part of the research and the suggestions provided by both buyers and suppliers for overcoming these barriers have a number of common themes.

A number of aspirations under each theme are presented here which, if achieved would help to overcome barriers to innovation on both the supplier and buyer sides.

Theme Barriers to Innovation Aspiration

Knowledge and Skills

• A lack of public sector knowledge of specific industries
• A lack of demand in the public sector for innovative products and services

• Public sector commissioners and buyers with greater market knowledge
• Greater commercial skills within the public sector

Communication

• A lack of pre-procurement market engagement between buyer and supplier
• A lack of buy-in from commissioners

• Greater communication between commissioner/buyer and suppliers

Collaboration

• A lack of cross-departmental budgeting to facilitate cost savings

• Cross-departmental budgeting

Removing/ Reducing/ Managing Risk of Legal Challenge from Suppliers

• Buyers too risk averse

• A public sector which can encourage innovation without the threat of:
  • Challenge and litigation
  • Delaying contract commencement
  • Financial loss
  • Personal/professional risk
• A public sector equipped to manage risk in the procurement of innovation

Changing Tender Practice

• Too restrictive tender specifications
• A lack of understanding of the processes available to produce innovative products and services
• A lack of adequate consideration of total life costs

• Contracts with less restrictive specifications in order to encourage innovative solutions
• Terms of Reference which explicitly demonstrate how total life costs have been considered when setting the weighting for cost

Barriers to innovation in procurement: supplier attitudes | Create infographics

Key recommendations

Based on these research findings, the key recommendations emerging from the study are as follows:

Theme 1: Knowledge & Skills

• The public sector should commit to the continuing / enhanced development of commissioners’ and buyers’ market knowledge. This will enable public sector organisations to carry out more market research in advance of the procurement process, particularly in markets that involve fast-moving technology.
• The public sector should commit to developing commissioners’ and buyers’ commercial skills, such as is demonstrated by the UK Crown Commercial Service commercial training programme. This would support them in their work to identify and evaluate innovative products and services, and in turn could achieve greater value for money in contracts.

Theme 2: Communication

• To facilitate greater communication between commissioners and buyers, the public sector could introduce category buyers where appropriate, with knowledge of specific industries. This would create a stronger link between commissioners and frontline buyers to help demonstrate the benefits of new, innovative products and solutions.
• The public sector should communicate more with suppliers and make more use of pre-procurement market engagement processes where appropriate, and particularly in markets that involve fast-moving technology. This will provide the public sector with a greater insight into what’s on offer in the market before developing a specification.
• This communication could be further facilitated by the introduction of an electronic Public Sector Innovation Platform where suppliers and buyers can engage on a regular basis. Well in advance of a procurement process, buyers and commissioners could use the electronic platform to publish future requirements or issues they need resolved. Suppliers could also respond confidentially with their ideas and solutions.
• Central government departments and other public sector bodies should trial sector specific ‘Meet the Commissioner’ days or innovation open days with the appropriate departmental contacts in attendance. This would facilitate supplier engagement with the departmental contact/user rather than just procurement professionals, which would in turn foster more meaningful communication between the parties.

Theme 3: Collaboration

• To facilitate greater cross-departmental budgeting, the appointment of an individual (or individuals) within the public sector to identify cost-saving relationships between contract delivery elements governed by different departments is recommended. This would in turn help promote greater appreciation of innovative products and solutions which have the potential to save money across more than one department or public sector body.
• To encourage greater collaboration between suppliers and therefore increase their capability and capacity to supply innovative products and solutions, suppliers could be offered training aimed at helping them to identify, develop and manage successful collaborative partnerships.

Theme 4: Removing / Reducing / Managing risk

A number of recommendations have been put forward that could help the public sector encourage innovation without the threat of the following:

• Challenge and litigation
• Delaying contract commencement
• Financial loss
• Personal/professional risk

These recommendations include:

• A greater commitment by the public sector to provide more detailed feedback to suppliers on tender submissions, which may reduce the incidence of legal challenge.
• The introduction of an intermediate body which could be the first port of call if a supplier has a grievance regarding how a procurement event was managed. This could result in fewer cases going to full legal challenge.
• The introduction of an innovation fund which would be available to public sector organisations (outside of their individual budget allocation) who wish to consider or trial innovative products and services. This could help reduce the financial risk associated with trialling innovative products and services outside of a procurement environment.
• To work towards the development of a public sector which is equipped to manage risk in the procurement of innovation, buyers and commissioners could be offered training on the identification, reduction and mitigation of risk in the procurement process.

Theme 5: Changing Tender Practice

• The public sector should commit to greater use of outcome-based specifications. This would permit suppliers to submit tender responses which provide innovative solutions without being limited by restrictive tender specifications.
• The public sector should be more explicit in their Terms of Reference as to how total life costs have been considered when setting the weighting for cost. Suppliers would then have more confidence that this has been considered adequately.

Incentivising Innovation

• In parallel with the above recommendations the public sector should initiate an incentive programme for employees who actively encourage innovation through their procurement practices, particularly where the new solution demonstrably achieves greater value for money.

The implementation of these recommendations will require co-ordinated action across the public sector, and not just in Centres of Procurement Expertise. However all of the indications from this research study are that the public sector is committed to taking on the challenge of facilitating and stimulating innovation through public procurement.

Further Challenges

As indicated already, the Terms of Reference for this study focused on:

• A programme of research to examine this key question: ‘To what extent does public procurement policy and practice in Northern Ireland encourage innovation’; and
• The proposal of recommendations for improvement.

A follow-up challenge now needs to be taken up in relation to:

• The prioritisation of those recommendations; and
• The development of action plans for:
  • The implementation of recommendations; and
  • The identification of barriers and challenges to implementation, and the development of measures to overcome these barriers and challenges.

This work could be initiated by a cross-departmental working group, involving representatives from various procuring departments (e.g. commissioners), COPEs, the Public Service Reform Division of the Department of Finance & Personnel, and other relevant departments or groups.

Stephen Peover (Chair, Chief Executive's Forum), Lisa McElherron (NICVA), Simon Hamilton (Minister of Finance and Personnel) and Wayne Hemingway (Hemingway Designs), who spoke at the NICVA 'Innovation: Design, Development, Delivery' event

 

Simon Hamilton (Minister of Finance and Personnel) - Speaking at the Innovation conference

Wayne Hemmingway (Hemmingway Designs)

Simon Hamilton MLA and Wayne Hemmingway - Discussion

Andrea Siodmok (Head of the Policy Lab, UK Government Cabinet Office)

Malcolm Beattie (Head of Innovation Lab, Department of Finance and Personnel)

Deirdre Ni Raghallaigh (Former head of The Studio, Dublin City Council)

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