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

Chapter 3: Innovation and procurement in the Department for Transport

34.  In this chapter we look at the DfT's approach to procuring innovation, the extent to which the DfT has responded to the attempts by governments to encourage innovation through public procurement and what more the department can do. Background information about the DfT is set out in Box 1 below. We recognise that different departments perform differently and our findings in respect of the DfT may not necessarily be applicable to other departments. However, in our view, some more general lessons can be drawn from the evidence we received about the DfT.


The Department for Transport
The DfT is the sixth largest government department in the United Kingdom in terms of number of employees.[42] In addition to the corporate centre it has seven executive agencies, the largest of which is the Highways Agency (HA), and a further 11 arms' length bodies. The DfT has four strategic objectives:
  •   Sustain economic growth and improved productivity through reliable and efficient transport networks.
  •   Improve the environmental performance of transport.
  •   Strengthen the safety and security of transport.
  •   Enhance access to jobs, services and social networks, including the most disadvantaged.

Departmental third party spend for 2008-09 was £10.8 billion, of which £3-4 billion took the form of formal procurement.[43] The ratio of third party spend to total costs is thought to be higher in the DfT than any other major government department.[44] The DfT is accountable for other forms of third party expenditure (rail franchising, payments to Network Rail, Transport for London and local authorities) and has different models of governance and leverage over this spend. With regard to pre-commercial procurement,[45] the DfT spends about £60 million each year on research, some of which is focused on innovation in tackling transport issues through a Research and Technical Consultancy Framework, intended to encourage suppliers to consider innovative solutions in framing tenders.[46] The DfT has a Transport Research Centre to carry out strategic research "focused on enhancing the evidence base needed to inform key transport policy issues facing the UK over the next decade and beyond",[47] and the Department participates in the TSB Innovation Platforms designed to generate innovative solutions within the market.[48]

Responsibility for procurement

35.  Until recently, the Director of Procurement in the DfT was the departmental lead for "developing and introducing innovative procurement processes and facilitating the procurement of innovative products and solutions".[49] During the course of this inquiry, the post (which was vacant) ceased to exist. Currently, the recently created Head of Procurement Profession is responsible for ensuring that the DfT's procurement policies, processes and procedures can enable innovation. Responsibility for "specifying and identifying innovative products and solutions rests with the appropriate business unit or agency".[50]

36.  In 2007, the OGC published a Procurement Capability Review of the DfT. The review concluded that "the DfT Board could play a stronger role in driving commercial performance" and that there was, at that time, "no overarching commercial or procurement strategy at Board or functional level". But it was also noted that in both DfT and HA there was "considerable good practice" and some that was "genuinely leading edge", and that rail franchising was "now a very impressive process, which has demonstrated innovation, good market involvement, transparent and robust processes, and successful financial outcomes".[51] In response, the DfT published an Improvement Plan which set out how it would address the recommendations of the review.[52] The DfT's Head of Procurement Profession has responsibility for taking forward capability improvements in procurement. The department published a procurement strategy and an IPP to support this strategy.

Embedding innovation into the procurement process

37.  Ministers and senior officials recognise the significance of government procurement as a tool with which to exercise influence and also the beneficial link between procurement and innovation in achieving solutions to procurement problems and impacting on economic growth. This is evident from the number of reports by different governments about promoting innovation and innovative thinking, and by the number of initiatives that have been put in place. We questioned why therefore that understanding has not been translated more effectively into action.

38.  The explanation appears to lie at two different levels. The first is the more straightforward. It focuses on how well the Government implements policies intended to encourage innovation through procurement. The second is more fundamental and more difficult to describe and therefore to tackle. It concerns how innovation is perceived within departments; it involves risk appetite and attitudes about risk-taking, the ability for departments and agencies to act as "intelligent customers" and the conflict between achieving short-term policy objectives and responding to long-term challenges. We look at this latter explanation in the next chapter. The former is dealt with in the following sections where we consider the DfT's IPP, procurement strategy and long-term planning capability.

Innovation Procurement Plan

39.  The DfT published its IPP in November 2009. The objectives of the IPP are listed in two categories: (1) innovation in the procurement process (that is, changing the way the department carries out its procurement); and (2) achieving innovative outcomes by delivering innovative solutions to specific requirements.[53]

40.  Although some of the activities described in the IPP are forward thinking—such as the departmental annual Commercial Stakeholders Event to which the top suppliers to the department and transport industry are invited with a view to stimulating innovative thinking—the DfT IPP has been criticised for focusing principally on current activity. David Connell, for example, said that "the DfT Plan describes many challenges and activities, but gives no indication that it plans to commission companies to develop technology and innovative new technologies needed to meet its objectives". Indeed, he was critical of IPPs more generally on the grounds that, on the whole, departmental IPPs were "very general in nature".[54]

41.  Fergus Harradence of BIS commented that "it would be fair to say that the quality of the plans was variable; some from those departments that had more experience of procuring innovative products and services, such as the Ministry of Defence, were relatively strong. I think others were relatively weak and were perhaps more focused on some of these distinct procurement mechanisms and activities that were under way, rather than being more forward-looking documents of the sort that we were trying to encourage departments to produce".[55] But he also said that it was too early to evaluate the performance of departmental IPPs because of the lead time involved in innovation, and that, so far, BIS had only evaluated the quality of the plans themselves rather than their translation into procurement practice.

42.  We were struck by the lack of key performance indicators or measurable objectives in IPPs, such as the number of outcome-based specification contracts or the number of times that SBRI and FCP have been used. As a result it is difficult to judge whether a department is in fact delivering the objectives stated in IPPs. The absence of measurable objectives means that IPPs tend to be little more than a statement of good intentions.

43.  We recommend that all government departments, including the DfT, should set out in their IPPs measurable objectives against which success can be assessed and a timetable according to which those objectives must be achieved.

Procurement Strategy

44.  The DfT procurement strategy, last reviewed in May 2010, sets out "how the DfT and its subsidiary bodies intend to achieve added value, innovation and quality through procurement excellence in the delivery of the Department's business objectives".[56] Procurement objectives 1 and 2 in the procurement strategy include a commitment to promote innovation.

45.  The DfT procurement strategy uses all the right words such as "challenging the 'status quo'", "being creative and open to exploiting new ideas", "being an intelligent client", and we were provided with some examples where a procurement problem had been resolved by an innovative solution. One involved the DfT having to find a way to speed up the time taken to get people on and off trains in order to run more trains on the upgraded Thameslink route for the benefit of passengers and the profitability of the business. A piece of research funded by the Engineering and Physical Sciences Research Council and carried out at University College London was identified through the involvement of the CSA in the consideration of possible technical solutions during the procurement process. After providing £250,000 funding to develop the technology, a solution was found by engineering a train-platform interface. This resulted in the re-examination of the planned infrastructure solution for the project. Crossrail and the Olympic Delivery Authority have both taken note of the Thameslink project with a view to including its findings in their activities for their respective train transport systems.[57]

46.  Despite the existence of the departmental procurement strategy and the IPP, Mike Acheson, Divisional Manager of Procurement Policy and Contracts at DfT, conceded: "What may be missing ... is the overarching strategic piece that says, 'we need to look at innovation before we do anything else', which is perhaps one of the key issues for this Committee. The fact that I'm struggling to pinpoint where that may be proves the point that perhaps we are not as hot on that as we could be". [58]

47.  Professor Collins told us that there was no mechanism by which innovative knowledge that was created in one part of government was made available or used in another part of government. He suggested that "it's serendipitous ... and the whole idea of innovation around this type of activity is not institutionalised, I think, at a scale that would allow it to deliver against the aspirations that I sense are needed."[59]

48.  Happold Consulting felt that the fact that the DfT's departmental strategic objectives (see Box 1 above) did not explicitly cover innovation and procurement was significant. They suggested that it indicated that "high level policy objectives do not mesh clearly with departmental strategic objectives ... Addressing this issue and making innovation/procurement part of their strategic objectives would put the issue at the forefront of public sector procurement, which would be cascaded to the operational level".[60]

49.  Although the DfT's procurement strategy and IPP outline a number of activities to support innovation, we have been left with the impression of a department which lacks clarity and apparent understanding about the contribution that innovation can make to the procurement of goods and services and the lack of a coherent strategic plan to ensure that innovation is sought where appropriate.

50.  Notwithstanding examples such as the one in paragraph 45, we have been frustrated by the lack of convincing evidence of an understanding within the DfT of the importance of the link between procurement and innovation. The examples that have been provided are relatively few and where an innovative solution has been applied it appears to have been by chance rather than the result of a coordinated and coherent effort to embed innovation into day-to-day procurement decisions. We recommend that the DfT should identify the additional activities it intends to carry out to ensure that the possibility of innovative solutions to its procurement problems is systematically included in its procurement decision-making processes.


51.  The HA is the largest of the DfT's executive agencies and invests in excess of £2.5 billion every year in roads. Around 70% of its budget is allocated to day-to-day operations and maintenance; for example, keeping traffic flowing and the network safe and serviceable. The HA delivers the majority of services through contractors. Its procurement strategy has three central aims: value for money, confidence in delivery, and sustainability.[61]

52.  Ginny Clarke, the Director of Network Services and Chief Highway Engineer at the HA, described some of the procurement activities that the agency has carried out. She explained that the agency had "produced a procurement strategy that tries to put in a strategic view of how procurement is driving the sorts of requirements for the HA ... [procurement] is a tool to help us deliver".[62] A number of witnesses were very positive about the HA's approach to procurement.[63]

53.  Balfour Beatty, for example, illustrated the activity of the HA through an example of a unique form of contract in operation in the South of West of England, the Area 2 Enhanced Managing Agent Contractor (EMAC) contract. This type of contract "rewards innovation through specially designed efficiency share mechanisms, along with contractual bonuses for innovation. As a result a number of improvements have been made to the effectiveness and efficiency of road management and maintenance activities".[64] Charles Penny, a civil engineer, cited this collaboration as "the most enlightened and potentially the most effective that I have seen to date. Savings of hundreds of millions of pounds could emanate nationally".[65]

54.  Another example was Managed Motorways. Through the introduction of innovative technology, which is controlled by overhead screens, the HA aims to make better use of the existing road space and tackle congestion. The system consists of two elements: variable speed limits to keep the traffic moving (based on a computer system which calculates the appropriate speed limits from traffic readings) and the use of the hard shoulder during congested times. After a successful pilot on the M42 motorway, the HA is trialling a similar traffic management technique on a trunk road. There are now 35 schemes in total making up the nationwide delivery of the Managed Motorway network. This technology has been sold to the Athens Olympics and other countries.[66]

55.  The examples we have received of the HA's use of procurement of innovative ideas are encouraging and should be used to inform the procurement activities of the DfT and its other agencies.

Long-term strategic procurement planning

56.  The importance of long-term planning is widely recognised. Invensys Rail, for example, told us: "the adoption of a well-defined long-term strategy for the railways is essential. This will help to ensure that the rail industry and its suppliers have a clear vision of how the railway will be expected to develop over the next few decades (rather than the next few years) by articulating the infrastructure and technological development that will be required and the long-term public and private investment that would be needed to pay for it".[67] A recent report by the Royal Academy of Engineering stated that "new infrastructure will need to be built consistently with adaptation requirements[68] ... Infrastructure procurement needs to take future climate and weather conditions into account".[69]

57.  David Connell also referred to the need for a longer-term view: "Government ... [needs to] work with suppliers, particularly lead suppliers and systems builders plus probably the TSB in order to identify areas where component technology is required in the future and trying to ensure that that's available", but he commented "I'm not sure I see that happening at present".[70]

58.  We asked Transport for London (TfL) what activities they were carrying out to future-proof London's transport network over the next 50 years or so. Andrew Quincey, Director of Group Procurement for TfL, said: "a lot of our long-term horizon planning is set by the London Plan, which is a 20-year view ... I would not have said we do anything longer than 20 years".[71] He also said that he was not, as part of his role in procurement, "looking ahead in terms of sustainability over the window you are discussing".[72] We were later reassured by TfL that long-term planning, such as adaptation to climate change, was being taken into consideration. They told us that "TfL's current climate change adaptation programme has been developed within the context of the UK Climate Projections which were published in 2009 and look ahead to the year 2100".[73] This apparent discrepancy inevitably caused us to question whether this a matter of as high priority as it should be.

59.  Johnson Matthey Plc suggested that the Government should make better use of procurement to create lead markets for low carbon technologies.[74] Lord Bhattacharyya commented that: "in the US, agencies such as the Defence Advanced Research Projects Agency (DARPA) have been very successful in the use of 'demonstrators'[75] and 'grand challenges' in driving innovation through procurement" noting that the "UK national practice [of the establishment of demonstrators] remains modest in scale".[76]

60.  Professor Georghiou argued that "roadmaps and, in general, Foresight-type approaches are an important tool in promoting the idea of innovation in procurement".[77] David Willetts MP, Minister for Science and Innovation, concurred: "one area where the scientific community can make a contribution to innovation is through exercises like the Foresight exercise, which comes much further upstream and does try to identify future needs, future challenges, areas where there are grand challenges".[78]

61.  The role that departmental CSAs can play in formulating long-term planning strategies was highlighted by work undertaken by Professor Collins for HM Treasury on modernising the national infrastructure network over the next 40 years through the formation of an Innovation and Growth Team. Such teams involve Government, industry and academics talking about what the roadmap will be for their product or service over the next 30 to 40 years. This project asks the question "what are the critical things that we need to invent, innovate or discover, in order to allow us to be where we want to be in 2050, still keeping the lights on, low carbon, economic growth, social values, and adapting to climate change?"[79] Ginny Clarke of the HA also gave an example of CSA involvement in long-term planning efforts within Defra, referring to the CSA "working with a particular project Defra were leading on, looking at adaptation across providers".[80]

62.  Long-term strategic procurement planning needs improvement. In particular, grand challenges, such as adapting to climate change, should be taken into account in public procurement decisions.

63.  The involvement of departmental CSAs is essential if horizon-scanning activities within departments are to be carried out effectively. We recommend that government departments should set out in their IPPs how these plans support departmental long-term planning and horizon-scanning, over the next several decades (in the case of departments that procure long-lived infrastructure projects, the very long-term planning should be carried out over the life of the infrastructure). Such plans should be formulated in consultation with Foresight and departmental CSAs. The long-term plan should be kept under review and include technology roadmaps and measures against which the appropriateness and effectiveness of the plan can be assessed.

42 Back

43   Procurement Strategy, DfT (May 2010). Back

44   OGC, Procurement Capability Review Programme: Department for Transport (Oct-Nov 2007). Back

45   "Pre-commercial procurement" is a process whereby R&D is procured to explore innovative ideas or products from concept to first test products. Back

46   Innovation Procurement Plan, DfT (November 2009). Back

47 Back

48   PP 33. Back

49   Innovation Procurement Plan, DfT (November 2009). Back

50   Ibid. Back

51   Procurement Capability Review Programme,op cit. Back

52   Ibid. Back

53   Innovation Procurement Plan, DfT, op cit.. Back

54   PP 13. Back

55   Q 2. Back

56   Procurement Strategy, DfT, op cit. Back

57   QQ 75, 74. Back

58   Q 14. Back

59   Q 74. Back

60   PP 14. Back

61   Procurement Strategy 2009, Highways Agency (October 2009). Back

62   Q 4. Back

63   PP 31, PP 22, PP 17. Back

64   PP 34. Back

65   PP 22. Back

66   PP 35, PP 37, Q 24 Back

67   PP 26. Back

68   The infrastructure will have to be flexible enough to be able to cope with possible changes in weather patterns, such as very high temperatures, caused by climate change. Back

69   Infrastructure, Engineering and Climate Change Adaptation-ensuring services in an uncertain future, The Royal Academy of Engineering (February 2011). Back

70   Q 47. Back

71   Q 164. Back

72   Q 170. Back

73   PP 40. Back

74   PP 10. Back

75   A device or object used as a model to support a theory. Back

76   PP 02. Back

77   Q 47. Foresight is part of BIS. Its role is to "use the latest scientific and other evidence combined with futures analysis to tackle complex issues and help policy makers make decisions affecting our future". Back

78   Q 183. Back

79   Q 75. Back

80   Q 29. Back

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