Chapter 2: Recent developments in public
procurement and innovation policy|
16. In considering the relationship between public
procurement and innovation, a distinction can be drawn between
specific schemes designed to promote the use of public procurement
as a tool to stimulate innovation (such as the Small Business
Research Initiative (SBRI)),
and policies intended to embed innovation within the procurement
process. Both aspects are important. In this report, however,
we focus chiefly on the latternot least because, at present,
innovation through specific schemes represent a very small proportion
of overall spenda little over 0.01% of the overall public
Government policy statements
17. In Transforming government procurement,
published in 2007, the previous Government set out their "government
procurement vision". It was intended to transform the government's
procurement function so that it would consistently deliver "high
quality public services at good value for money" and would
be "better able to take advantage of business innovation".
Underlying the vision was a commitment, amongst other things,
to provide better scrutiny of, and support for, complex projects,
"ensuring that the best, innovative solutions [could] be
brought forward and adopted".
The report set out a number of initiatives such as strengthening
the role of the Office of Government Commerce (OGC) in setting
procurement standards, placing an emphasis on outcome-based specifications
in procurement and plans to raise the level of procurement skills
within government departments.
18. Also in 2007, Lord Sainsbury published a
review of Government science and innovation policies.
The review, entitled The Race to the Top ("the Sainsbury
review"), was commissioned as part of the Comprehensive Spending
Review and was charged with considering the role of science and
innovation in enabling the United Kingdom to compete more effectively
with emerging economies such as China and India. The review argued
that value for money and innovation could be complementary objectives
in government procurement. It urged the Government to implement
plans to improve departmental procurement capability and
encouraged the use of outcome-based specifications and the use
of departmental R&D budgets through initiatives such as the
SBRI and the use of Forward Commitment Procurement (FCP) mechanisms
to support innovation.
19. The 2008 Innovation Nation white paper
built on the Sainsbury review. It proposed a range of measures
to encourage innovation, based on the premise that innovation
was essential to the future economic prosperity of the United
Kingdom and to tackling major challenges like globalisation and
climate change. The
white paper recognised that innovation could be promoted by supply-side
measures (such as investment in research) or be demand-led; and
that demand-led measures included harnessing the power of government
spending to create demand for innovative products and services.
Amongst other things, the white paper proposed that each government
department should be required to prepare an Innovation Procurement
Plan (IPP) as part of its commercial strategy, "setting out
how it [would] drive innovation through procurement and use innovative
procurement practices". It also set out measures to increase
innovative capacity in the United Kingdom through the development
20. The present Government have acknowledged
the importance of public procurement as a tool to stimulate innovation.
In July 2010, in his first major speech as Minister for Universities
and Science, David Willetts MP said that it was "vital"
for the public sector to use its purchasing power "effectively";
that much more might be done to support innovation; and that government's
procurement decisions "can have important intended or unintended
consequences for innovation".
Shortly after, in evidence to this committee, Mr Willetts said:
"I am very much impressed by the evidence on the role of
public procurement ... If we could just use a tiny fraction of
[the public procurement budget] as imaginatively as the Americans
do, it would be a real contribution to innovation".
And in September 2010, the Secretary of State for BIS, Vince Cable
MP, also referred to the role that the public sector could play
"as a first customer for innovative products and services"
and that he was "committed" to making greater use of
the SBRI programme to facilitate economic growth and innovation.
21. In November 2010, the Government launched
its Growth Review, The path to strong, sustainable and balanced
growth. The Growth
Review "is a rolling programme to last the whole Parliament,
with a first report by Budget 2011" Its purpose is to enable
"a fundamental assessment of what each part of government
is doing to provide the conditions for private sector success
and address the barriers faced by industry". The review acknowledges
that "public spending ... shapes markets through Government's
role as a procurer" but suggests that the current procurement
system "works against a competitive market". It argues,
in particular, that the system acts as a barrier to "dynamic
and innovative SMEs" and that, amongst other things, the
SBRI should be used to direct public money towards firms which
are developing innovative technologies. The review refers to the
Government's Technology Blueprint, also published in November
2010, and their "ambition to be the most technology-friendly
government in the world"; and it describes the initiatives
set out in the Blueprint which include, for example, the
provision of £200 million to the TSB to establish a network
of Technology and Innovation Centres.
Both the review and the Blueprint focus on SMEs as holding
significant potential for developing innovative solutions. The
Blueprint, for example, reiterates the aspiration that
25% of government contracts should be awarded to SMEs.
IMPACT OF GOVERNMENT POLICY
22. Professor Luke Georghiou, Professor Jackob
Edler and Dr Elvira Uyarra of the Manchester Institute of Innovation
Research argued that "the problem lies in the implementation
of all those intentions and report recommendations. The complex
and changing procurement landscape and the 'overcrowding' of the
'policy through procurement' agenda has, over time, resulted in
a proliferation of guidance and reports which can be confusing,
even contradictory, to procurers".
David Connell, Senior Research Fellow at the Centre for Business
Research at Cambridge University, goes even further, concluding
that the "exhortations, guidelines, 'plans' and targets have
all had virtually no impact".
23. The National Endowment for Science Technology
and the Arts (NESTA) told us that "the UK, and Europe as
a whole, fails to fully exploit the opportunity of using public
procurement to drive innovation". They go on to say that
"the UK doesn't fail to reach its potential for innovation
because of a lack of ideas. Instead, this happens because those
ideas get 'marooned'
[because there are not]
avenues to translate them into viable commercial products".
24. In March 2009, the National Audit Office
(NAO) reported: "there is considerable evidence of ... government
innovation over the last decade, in the way in which public services
are delivered, as well as in the use of technology to improve
services and the administration of back office functions".
However the NAO report concluded that public servants were
still "inhibited from developing innovations through to implementation
by risk-averse attitudes and perceptions, and that national performance
measures, targets, budgets and national initiatives leave little
room for innovation". The report also said that "central
government organisations are not systematically taking the opportunity
to use suppliers to generate innovative ideas", that "departments
... need to manage innovation more systematically", that
"only a few departments have strategies which show that they
understand where they need innovation or how to encourage and
support it" and that "departments are not currently
maximising the opportunities to innovate".
The evidence that we have received suggests that little has changed
since the NAO report was published.
25. Birmingham Science City stated that "public
sector procurement needs to be transformed so that the public
sector encourages suppliers to think the unthinkable. This involves
a fundamental alteration in the public sector's expectations regarding
procurement. The public sector should not just be interested in
obtaining products for the least cost, but should also be concerned
with enhancing the resilience of the regional and national economy".
We agree. In order to effect the transformation required, there
needs to be a real culture change at all levels of government,
including the highest level.
26. It is striking the number of documents
and reports published in recent years that make recommendations
about innovation in public procurement. Yet it is disappointing
that we have seen no evidence of a systematic and coherence use
of public procurement as a tool to stimulate innovation. We urge
the Government to take steps to ensure that there is a fundamental
change in the culture within government so that innovation is
wholly integrated into the procurement process.
Responsibility for procurement
and innovation in the public sector
27. In the context of government policy, responsibility
for procurement and innovation policy does not reside within the
same government department: whereas the CO takes the lead on public
procurement policy, responsibility for innovation policy lies
with BIS. Responsibility
for individual procurement decisions rests with the relevant government
department or public sector organisation.
28. The OGC, which in June 2010 transferred from
HM Treasury to the CO, works with government departments and other
public sector organisations to assist them in achieving a number
of goals which include: ensuring best value for money; promoting
innovation; and developing central government capability in procurement.
Lord Sainsbury placed great emphasis on the role of the OGC in
procurement, stressing the importance of the OGC's involvement
in the appointment boards of procurement departments. Although
his evidence has been overtaken by changes (see paragraph 29 below),
he suggested that the OGC's chief executive should produce a yearly
report on the state of procurement across government.
29. The OGC is now part of the recently created
Efficiency and Reform Group (ERG), chaired jointly by the Chief
Secretary to the Treasury and the Minister for the CO. The ERG's
aim is to drive efficiency improvement and reform in the Government's
operations and it is currently working on streamlining the procurement
process and moving to outcome-based specifications.
30. Despite these developments, it appears that
responsibility for procurement and innovation remains fragmented.
As Chief Scientific Adviser (CSA) for BIS and DfT, Professor Brian
Collins is well-placed to comment on this. He told us that "there
isn't any one person who describes all the systems that make up
the innovative procurement of new capability to modernise the
he suggested that there should be a Minister charged with looking
after "the wellbeing of the operation of the country and
everything that flows from that, which is procurement, innovation
Iain Gray of the TSB made a similar point. He said that it was
"hugely important" that within each government department
there should be a Minister who would take responsibility for that
department's use of specific procurement schemes (such as the
SBRI) designed to promote innovation;
and Happold Consulting commented that "what appears to be
missing is a focus on innovation through procurement at the high
the Future argued that "it might be beneficial if a Minister
in each department was given responsibility for ensuringwhere
possibleprocurements within their department's remit serve
to encourage innovation".
31. The Minister, Francis Maude MP, agreed that
there had been an absence of high-level commitment to oversight
of procurement. In his experience, he said, it had tended to be
the case that once a policy had been agreed, responsibility for
procurement would "default to a relatively junior level"
and that "there has been a marked lack of interest by senior
officials and Ministers in what happens with a project after the
decision to go with it has been made".
He was optimistic however: "There is a difference between
announcing a policy and seeing it through to delivery. I think
senior people, both Ministers and officials, need to reflect that
and I think the boards, the new and stronger departmental boards
that we are currently putting in place, will help with that".
32. These developments are encouraging but we
are not satisfied that they will be sufficient to bring about
the necessary culture change within departments and other public
bodies. We recommend that a Minister should be responsible
for both procurement and innovation, charged with ensuring that,
where appropriate, innovative solutions are used to meet procurement
problems across government. The Minister assigned with this responsibility
should formulate a national framework for innovation in procurement
which will provide the basis on which government departments,
local authorities and non-departmental bodies would work. The
Minister should be held accountable for how well procurement decisions
are made including to what extent innovative solutions had been
considered and the reasons why they had not been adopted.
33. Furthermore, there should be a Minister
in each government department with specific responsibility for
procurement and innovation in order to create a high level network
across government with a view to strengthening the link between
public procurement and innovation.
14 For a description of this scheme see paragraph 125. Back
Transforming government procurement, op cit. Back
The Race to the Top: a review of Government's science and innovation
policies, Lord Sainsbury of Turville (October 2007). Back
For a description of the FCP, see paragraph 129. Back
Innovation Nation white paper, BIS (March 2008). Back
Speech at the Royal Institution, 9 July 2010. Back
Transcript of 13 July 2010, Q 18. Back
Speech at Queen Mary University of London, 8 September 2010. Back
The path to strong, sustainable and balanced growth, HM
Treasury and BIS (November 2010). Back
Technology Blueprint, BIS (November 2010). Back
PP 16. Back
PP 13. Back
PP 07. Back
Innovation across central government, NAO (March 2009). Back
PP 05. Back
PP 18. Back
Q 104. Back
The Government described "outcome-based specifications"
as follows: "A well constructed output specification identifies
the outputs from, rather than the inputs to, a requirement. An
outcome specification takes this one step further and specifies
the end result to be achieved." PP18. Back
Q 67. Back
Q 69. Back
Q 81. Back
PP 14. Back
PP 24. Back
Q 178. Back