New approaches for the procurement of R&D, innovative products & services

Pre-Commercial and innovation friendly procurement

Importance of public procurement for R&D activities and innovation 

Public procurement accounts for some 19% of GDP in the European Union and offers an enormous potential market for innovative products and services. Public procurement practices can help foster market uptake of innovative products and services, whilst improving the quality of public services in markets where the public sector is a significant purchaser. With this in view, the report on “Creating an Innovative Europe” in 2006 suggested that if Europe cannot offer innovation-friendly markets for the creative outputs of its business, then these will go elsewhere. It called upon governments to “use public procurement to drive demand for innovative goods, while at the same time improving the level of public services.“¹ Taking this into account, research and innovation, including eco-innovation and social innovation, have been identified as the main drivers of future growth and have also been put at the centre of the Europe 2020 strategy for smart, sustainable, and inclusive growth.

The current legal framework for innovative procurements 

Public procurement in Europe is subject to a legal framework currently defined by two EU Directives (2004/17/EC & 2004/18/EC). One looks at procurement in the water, energy, transport, and postal services sectors, while the other focuses on public works, supply, and service contracts. The current EU Directives provide a number of opportunities for including innovation and R&D considerations within public procurement procedures, such as the exclusion of the application of the Directives for the co-financing of certain R&D contracts (in order to encourage the co-financing of R&D programs by industry sources) or the introduction of the competitive dialogue enabling contracting authorities to develop and negotiate tailored solutions in the course of a formal procurement procedure. Furthermore, a series of procurement models have been outlined in the Commission’s communication of 14 December 2007 on pre-commercial procurement, such as procuring R&D services involving risk-benefit sharing at market conditions.²

Upcoming changes encouraging innovation friendly procurement

The European Commission’s proposals

In December 2011, the European Commission published proposals for the revision of the above Directives (“Proposals”) with the aim of improving the efficiency of procedures, and to allow for greater strategic use of public procurement to further environmental, social, and industrial/innovation policies. The Proposals are expected to pass the European parliament by the end of 2013 and implement significant changes to the current procurement regime, with the goal of increasing and facilitating pre-commercial procurement and public procurement of innovation.

The innovation partnership 

First and foremost, the Commission introduced a new procurement procedure aiming to cover situations where a need for the development of an innovative product and the subsequent purchase of the resulting work cannot be met by solutions already available on the market. The so-called innovation partnership allows contracting authorities to establish a long-term innovation partnership with a supplier for the development and subsequent purchase of a new, innovative product, provided that such innovative product can be delivered to agreed performance levels and costs, without the need for a separate procurement procedure for the purchase. Being based on the procedural rules for the negotiated procedure, contracts should be awarded on the sole basis of the best price/quality ratio, which is most suitable for comparing tenders for innovative solutions.

New tools for innovation-oriented tendering

Considering the important role of joint procurements in connection with innovative projects, the Proposals also introduce clear conditions and rules for joint procurements by contracting authorities (also from different Member States), enabling contracting authorities through bulk purchasing to provide the necessary demand and purchasing power to launch new solutions and innovative projects. Moreover, the Proposals significantly strengthen the use of life cycle costing, which describes all the phases through which a product passes from its design to its marketing and the discontinuation of its production, also taking into consideration research and development costs. Because of the importance of innovation, the Proposal further encourages contracting authorities to allow variants as often as possible.

Further measures fostering pre-commercial procurement and procurement of innovative products include (but are not limited to) more flexibility and simplification in relation to the procedures to follow, to negations and time limits or the facilitation of SMEs.

The European Commission’s proposals on new Procurement Directives offer great opportunities and provide useful tools for government purchasers to use innovation-oriented tendering, such as the newly introduced innovation partnership. However, practical experience and expertise continue to be the essential factors for the success of innovation-stimulating public procurement.

¹See http://ec.europa.eu/invest-in-research/action/2006_ahogroup_en.htm
²See COM(2007) 799 final.

author: Johannes Stalzer