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. 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. The ratio of third party spend to total costs is thought to be higher in the DfT than any other major government department. 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, 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. 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", and the Department participates in the TSB Innovation Platforms designed to generate innovative solutions within the market.
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".
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".
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".
In response, the DfT published an Improvement Plan which set out
how it would address the recommendations of the review.
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
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
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.
40. Although some of the activities described
in the IPP are forward thinkingsuch 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 thinkingthe 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".
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".
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.
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
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.
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". 
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."
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
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
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.
HA PROCUREMENT STRATEGY
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
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
A number of witnesses were very positive about the HA's approach
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
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
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.
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
Long-term strategic procurement
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".
A recent report by the Royal Academy of Engineering stated
that "new infrastructure will need to be built consistently
with adaptation requirements
... Infrastructure procurement needs to take future climate and
weather conditions into account".
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".
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".
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".
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
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.
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'
and 'grand challenges' in driving innovation through procurement"
noting that the "UK national practice [of the establishment
of demonstrators] remains modest in scale".
60. Professor Georghiou argued that "roadmaps
and, in general, Foresight-type approaches are an important tool
in promoting the idea of innovation in procurement".
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".
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
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".
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
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 http://www.statistics.gov.uk/pdfdir/pse1210.pdf Back
Procurement Strategy, DfT (May 2010). Back
OGC, Procurement Capability Review Programme: Department for
Transport (Oct-Nov 2007). Back
"Pre-commercial procurement" is a process whereby R&D
is procured to explore innovative ideas or products from concept
to first test products. Back
Innovation Procurement Plan, DfT (November 2009). Back
PP 33. Back
Innovation Procurement Plan, DfT (November 2009). Back
Procurement Capability Review Programme,op cit. Back
Innovation Procurement Plan, DfT, op cit.. Back
PP 13. Back
Q 2. Back
Procurement Strategy, DfT, op cit. Back
QQ 75, 74. Back
Q 14. Back
Q 74. Back
PP 14. Back
Procurement Strategy 2009, Highways Agency (October 2009). Back
Q 4. Back
PP 31, PP 22, PP 17. Back
PP 34. Back
PP 22. Back
PP 35, PP 37, Q 24 Back
PP 26. Back
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
Infrastructure, Engineering and Climate Change Adaptation-ensuring
services in an uncertain future, The Royal Academy of Engineering
(February 2011). Back
Q 47. Back
Q 164. Back
Q 170. Back
PP 40. Back
PP 10. Back
A device or object used as a model to support a theory. Back
PP 02. Back
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
Q 183. Back
Q 75. Back
Q 29. Back