Public procurement as a tool to stimulate innovation - Science and Technology Committee Contents

Public procurement as a tool to stimulate innovation

CHAPTER 1: Introduction

1.  Procurement is "the purchase of goods and services from third parties"[1] and "government is the single largest customer in the United Kingdom."[2] In 2009-10, "public procurement was valued at over £236 billion".[3] This magnitude of expenditure provides enormous potential to influence the development of innovative solutions, to improve delivery of public policy and services and to encourage economic growth.[4] And yet that potential is not being realised.

2.  Innovation in procurement is capable of providing three main benefits: first, it could result in a procurement problem being resolved in a more effective and creative way; second, it could lead to better value for money for the tax payer; and third it could stimulate British industry to generate new products and ideas that will, in turn, lead to economic growth, often based on the translation of scientific research into commercial products and services. The Technology Strategy Board (TSB) told us: "at present, most ... procurement is focused on purchasing proven solutions, or is spent with existing 'proven suppliers'. Even a small percentage of that spend, if used to buy more innovative products and services, could have a big impact on the innovative capability of UK businesses and at the same time provide better public services with the ability to save costs in the longer-term".[5] Colin Cram, Managing Director of Marc 1 Ltd, referred to public sector procurement as a "huge resource ... the potential benefit of which is well short of being realised",[6] and Iain Gray, Chief Executive of the TSB, described the use of government procurement to stimulate innovation as "a patchy picture" and considering "the sums of money involved ... there is a lot more that could be done".[7] The House of Commons Business and Enterprise Committee, in its 2009 report entitled Risk and Reward: sustaining a higher value-added economy, said: "There would be clear economic benefits if the Government could use its purchasing power not just to buy goods or services but also to promote innovation and higher added value".[8]

3.  We have been left with the strong impression that the overarching problem lies at the very heart of government. Despite the efforts that have been made to make government procurement more effective, there remains a culture within government departments and other public sector organisations which inhibits—and may even be antithetical to—the adoption of innovative solutions.

4.  We recognise that not all procurement problems require innovative solutions. Some are best resolved by applying those which have been used before. To this extent, we agree with Francis Maude MP, Minister for the Cabinet Office (CO), when he said: "there will be plenty of procurements where a completely well tried and tested approach is the right one, where you don't need or there may not be innovation available".[9] We also acknowledge that there are occasions when the risks associated with developing a solution which is untried and untested may be disproportionate to the anticipated benefits. It is a matter of assessing and mitigating risk and then making a judgement about how that residual risk weighs in the balance when placed against the potential benefits of adopting an innovative solution.

5.  Our concern is that the "tried and tested approach" is not applied only when it is judged to be preferable but that it is the default position. It appears to us that when procurement decisions are being taken, either insufficient or, worse, no consideration is being given to whether an innovative solution would be preferable, not only in terms of achieving better value for money but also in terms of wider benefits such as the potential to promote economic growth through stimulating new and commercially significant ideas in industry or encouraging the translation of scientific research into innovative goods and services. It is with regret that we note this lost opportunity.

Purpose and scope of the inquiry

6.  The role of government departments in stimulating innovation was drawn to our attention during the course of the committee's inquiry in 2009-10 into setting priorities for publicly funded research.[10] Lord Sainsbury of Turville, a former Minister for Science and Innovation, contrasted the effective use made of the research and development budgets of the United States Departments of Energy and Defence to support innovation with the less effective performance of United Kingdom government departments. He cited, as an example, the Home Office: "so should the Home Office have a budget which supports the development of innovation in the security industry ...? I think absolutely yes. They are the customer; they have the problem; and they should be driving a programme of innovation in that area".[11]

7.  The purpose of this inquiry is to consider to what extent government and other public bodies exploit the potential of public procurement to encourage the development of innovative solutions; whether the current structures and mechanisms in government which are intended to encourage innovation are effective; and what more can be done. Given the possible breadth of the inquiry, we decided to focus principally on a single government department whilst also considering procurement mechanisms across government more generally. The government department we chose was the Department for Transport (DfT). Our reasons were that it is an example of a government department engaged in significant procurement activity; it has a number of important challenges ahead such as improving traffic management systems and developing low carbon transport technologies; and it has a substantially devolved procurement structure (and is therefore ahead of many departments in terms of dealing with the implications of a further shift to the local provision of services). This report is not intended to provide an in-depth analysis of the procurement practices within the DfT, but rather a "snapshot" of current activities.

8.  Whilst much of the evidence submitted to this inquiry echoed similar themes, we were frustrated by a dearth of specific examples, whether of the effective procurement of innovative solutions or of a procurement solution which fell back on the tried and tested when an innovative solution might have been much better. We understand that this may be in part because of commercial confidentiality issues but regret that we were unable elicit more of this type of evidence.

Definition of "innovation"

9.  We received evidence from a wide range of organisations and individuals, and their evidence included a variety of definitions of the concept of "innovation". In a white paper published by the Department for Business, Innovation and Skills (BIS) in 2008, for example, it is defined as "the successful exploitation of new ideas, which can mean new to a company, organisation industry or sector. It applies to products, services, business processes and models, marketing and enabling technologies".[12]

10.  We take the view that "innovation", in the context of this inquiry, should be defined broadly. It involves the successful stimulation and exploitation of new ideas for the purpose of resolving a procurement problem effectively and efficiently. These new ideas might be entirely new, developed specifically to meet the requirements of a procurement problem, or they might involve a novel application of an existing innovative idea.[13] Furthermore, they may involve the development or application of new products or, alternatively, the innovation may be to do with the development of new processes or systems. The definition is wide-ranging but at its centre are the concepts of imagination and creativity, the intellectual leap that marks a development out as progressive rather than "business as usual".

11.  Although the inquiry is a broad one, we have imposed some limits. In particular, we have not included innovative approaches to the procurement process itself (such as e-procurement or catalogue and bulk-buying).

Government action

12.  In this inquiry, we have attempted to tackle a big subject in a relatively short space of time. We acknowledge that we have touched on a range of issues which would warrant further investigation and that, unusually, a number of our recommendations ask the Government to offer solutions to the problems we have detected, rather than suggesting solutions ourselves. Given that we have concluded that the main difficulty is deep-seated and cultural, we do not think it unreasonable, on this occasion, to expect the Government to use their knowledge of the fundamental workings of government to provide solutions. But devising these solutions will take time. Our intention is to follow up this report during the next session (2012-13), in about 12 to 18 months' time, in order to see what progress has been made against the findings of this report and what plans have been put in place to ensure that improvements are set to continue. All our recommendations should be read against this timeline.

Structure of the report

13.  In the next chapter we look at current Government policy and responsibility for procurement and innovation. Chapter 3 explores procurement and innovation in the DfT while Chapter 4 considers the barriers to innovation within government (with reference to the DfT where appropriate). In Chapter 5 we consider the implications of the Government's current efficiency and localism agendas, the role of small and medium enterprises (SMEs) and the TSB in innovation, and those schemes designed to promote public procurement as a tool to stimulate innovation. Appendix 5 sets out some international comparisons about the use of public procurement as a policy tool.


14.  The membership and interests of the Committee are set out in Appendix 1, and those who submitted written and oral evidence are listed in Appendix 2. The call for evidence with which we launched our inquiry is reprinted in Appendix 3. On 14 December 2010, we held a briefing session to which representatives from BIS, DfT and CO contributed. A list of those who gave presentations is set out in Appendix 4. We thank all those who assisted us in our work.

15.  Finally, we are grateful to our Specialist Adviser, Dr Paul Nightingale of SPRU (Science and Technology Policy Research) at the University of Sussex, for his expertise and guidance during this inquiry. We stress, however, that the conclusions we draw and the recommendations we make are ours alone.

1   Transforming government procurement, HM Treasury (January 2007). Back

2   PP 21. Back

3   Annual Innovation Report 2010, BIS (January 2011). Back

4   Public procurement and innovation-Resurrecting the demand side, Edler and Georghiou (2007). Back

5   PP 21. Back

6   PP 31. Back

7   Q 53. Back

8   11th Report (2008-09) (HC 746). Back

9   Q 178. Back

10   Setting priorities for publicly funded research, 3rd Report (2009-10) (HL Paper 104). Back

11   Ibid, and Q 51. Back

12   Innovation Nation white paper, BIS (March 2008), Cm 7345. Back

13   An example of an innovative procurement solution using an existing technology was the introduction in the Greater London area of the Oyster card by Transport for Londonin 2003. The challenge was to reduce the use of paper tickets and the number of transactions at ticket offices. An innovative solution was found in contactless technology which, although already in use in Hong Kong, was new to this country. Back

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