House of Lords - Public procurement as a tool to stimulate innovation

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

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)),[14] and policies intended to embed innovation within the procurement process. Both aspects are important. In this report, however, we focus chiefly on the latter—not least because, at present, innovation through specific schemes represent a very small proportion of overall spend—a little over 0.01% of the overall public procurement budget.

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".[15] 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".[16] 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.[17] 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.[18]

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.[19] 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 of skills.

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".[20] 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".[21] 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.[22]

21. In November 2010, the Government launched its Growth Review, The path to strong, sustainable and balanced growth.[23] 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.[24] 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.[25]

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".[26] 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".[27]

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] … enough avenues to translate them into viable commercial products".[28]

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".[29]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".[30] 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".[31] 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.[32] 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.[33]

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.[34]

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 country"[35] and 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 and growth".[36] 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;[37] and Happold Consulting commented that "what appears to be missing is a focus on innovation through procurement at the high level".[38] Engineering the Future argued that "it might be beneficial if a Minister in each department was given responsibility for ensuring—where possible—procurements within their department's remit serve to encourage innovation".[39]

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".[40] 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".[41]

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

15 Transforming government procurement, op cit. Back

16 Ibid. Back

17 The Race to the Top: a review of Government's science and innovation policies, Lord Sainsbury of Turville (October 2007). Back

18 For a description of the FCP, see paragraph 129. Back

19 Innovation Nation white paper, BIS (March 2008). Back

20 Speech at the Royal Institution, 9 July 2010. Back

21 Transcript of 13 July 2010, Q 18. Back

22 Speech at Queen Mary University of London, 8 September 2010. Back

23 The path to strong, sustainable and balanced growth, HM Treasury and BIS (November 2010). Back

24 Ibid. Back

25 Technology Blueprint, BIS (November 2010). Back