Public Procurement is an important and sophisticated mechanism for public bodies which influence the overall market and create policies for governments, agencies and other public bodies. There is much discussion surrounding the concepts of public procurement and innovation and how these can lead to an economically-stronger, environmentally-resilient, more competitive Europe. With respect to research, development and innovation services for public bodies two procurement mechanisms were created and are widely used – PCP and PPI.
- Public procurement of innovation (PPI) occurs when public authorities act as a launch customer for innovative goods or services. These are typically not yet available on a large-scale commercial basis and may include conformance testing.
- Pre-commercial procurement (PCP) is an approach within the public procurement of innovation, developed specifically for the procurement of R&D services rather than actual goods and services; if the goods or services developed during the R&D phase are to be procured, this would need to be based on a separate procurement process. Commercial procurement is described in the European Commission’s communication with the title Pre-commercial Procurement: Driving innovation to ensure sustainable high quality public services in Europe (Brussels, 14.12.2007 COM 2007:799 final).
Using PPI and PCP mechanisms public buyers can influence the market towards innovative and desired by specific body solutions.
PCP is an mechanism for acquiring Research and Development services which allow public procurers:
- share the risks and benefits of designing, prototyping and testing of new products and services with the suppliers and other participants such as the end-users
- guarantee the optimum conditions for wide commercialization and take-up of R&D results through standardization and/or publication
- join the efforts of several procurers.
- Pre-commercial procurement gives an opportunity to develop different ideas in parallel where one, or few of the initial ideas will eventually be selected for commercial public procurement in accordance with the Procurement Directives.
- Pre-commercial procurement start earlier in the innovation cycle of a product than a more conventional procurement project would do. It is also a competitive process where solutions are step-vise selected or abandoned. The first phase in pre-commercial procurement may involve a pre-study or ‘solution exploration’ where several different solutions are explored. A second phase may include prototype development of the solutions that are judged most promising. This can be followed by the development of a small test-batch of some of the remaining solutions. Eventually one or few of the remaining solutions are selected for commercial roll-out.
- Pre-commercial procurement is an attempt to highlight existing possibilities for public agencies to procure innovation within existing legal frameworks.
Public procurement of innovation (PPI) occurs when public authorities act as a launch customer for innovative goods or services. These are typically not yet available on a large-scale commercial basis and may include conformance testing. Innovation in the public procurement context takes into account: innovation in the design and delivery of public services, the procurement of innovative goods and services Innovative procurement processes and models.
The European Commission has included changes to the procurement procedures which are expected to increase the uptake of PPI. These include:
- Increased flexibility and simplification on the procedures to follow, negotiations and time limits;
- Clearer conditions on how to established collaborative or joint procurements which, through bulk purchasing, can provide the necessary demand to launch new solutions;
- Strengthening 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;
- The creation of innovation partnerships which enable a public authority to enter into a structured partnership with a supplier with the objective of developing an innovative product, service or works, with the subsequent purchase of the outcome;
- The exemptions for procurement of R&D services currently included in the new Directives (which are the basis for PCP) will be maintained. Public procurers can therefore continue to undertake pre-commercial procurement.
The powerful benefits of PPI Seeking more innovative procurement solutions can yield benefits for both public authorities and the private sector, as well as the wider society. These include:
- Increasing economic growth
The power of demand (e.g. first buyer or lead customer) can move the market to stimulate the economy and increase competitiveness of firms in future markets, creating new businesses and increasing the level of employment.
- Better products and services
Direct benefits to the public as the users of public services can be the result of bringing new ideas onto the market. These can be then provided more efficiently and effectively and also more cheaply.
- Solving the challenges facing society
Scientific and technological breakthroughs can be the result of PPI and PCP processes. The outcome of these can help tackle key societal challenges such as health and well-being; food security, sustainable agriculture, clean and efficient energy; sustainable and integrated transport; or climate change and resource efficiency.
PPI can be implemented in different ways by public authorities. The right approach will likely depend on a variety of factors:
- Political/high-level support
- Size of authority
- Knowledge and experience in PPI
- Availability of innovative products and services in regional markets
- PPI implementation is possible for any authority in any country.
- The Procurement of Innovation Platform is developing practical guidance on PPI which will facilitate preparation and implementation of public procurement of innovative goods and services; once finalised, this guidance will be available in this section of the Platform.
Further points of interest in the new Procurement Directive (2014/24/EU)
- Technical specifications and award criteria may refer to any stage of a product lifecycle, including addressing specific production practices, „provided that they are linked to the subject-matter of the contract and proportionate to its value and its objectives” (Art. 42).
- Product labels can be required as means of proof in technical specifications, award criteria or contract performance conditions as long as all the underlying criteria of the label are linked to the subject matter of the contract.
- The label must also meet specific criteria defined in the Directive regarding transparency, objectivity, accessibility, and credibility. Bidders must supply the named label or an equivalent label unless they can provide a convincing argument as to why they were not able to obtain the label in time for the bid.
- Use of ‘most economically advantageous tender’ (MEAT) as default criteria (Art. 67). When transposing the Directives, member states may choose to forbid or restrict the use of lowest price as the sole award criterion.
- The use of life cycle costing (LCC) as a method for assessing tender costs is clarified (Art. 68). Contracting authorities may select to include costs imputed to environmental externalities in this calculation.
- Possibility for greater control over subcontracting practices (Art. 71): the contractor is obliged to disclose the expected level of subcontracting in advance as well as providing, in the case of works and services contracts, contact details and details of legal representatives of any company used as a subcontractor.
- Introduction of a European single procurement document for bidders (Art. 59). This makes it easier to verify and standardise any proofs of environmental and social compliance given by bidders.
- The EU adheres to World Trade Organization agreement on fair international competition for public contracts. This agreement, known as the Agreement on Government Procurement (GPA), has 39 members including the 27 EU countries. The agreement bans discrimination in the awarding of public contracts and lays down procedural rules.
PPI and PCP procedures regulate and optimze cooperation between entities in procurement PPI and PCP procedures allow for greater innovation in public sector especially for entities that have specific requirements and lack of relevant technical knowledge.