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.
Acknowledgements
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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