Development of a measurement instrument for innovation facilitating procurement

In this research it was investigated how the percentage spend on innovation facilitating procurement (IFP) with respect to the total procurement budget of Rijkswaterstaat (RWS) can be measured. The idea behind IFP is to foster innovation among suppliers through the aggregation of public demand for innovative solutions and organising the procurement process in such a way that private parties are stimulated to develop and offer innovative solutions. IFP includes public procurement of innovative solutions (PPI) as well as precommercial procurement (PCP) and is defined as “the targeted seeking of innovative solutions by public agencies or providing possibilities towards market parties to develop an offer innovative solutions”. In 2011 the national government of the Netherlands stated the ambition to spend 2.5 percent of the national public procurement budget on IFP. In addition the programme Procurement Innovation Urgent (IIU) was established to stimulate the use of public procurement as an instrument for innovation. Rijkswaterstaat (RWS), the executive organisation of the Ministry of Infrastructure and the Environment, stated the ambition to develop a quantitative measurement instrument for this 2.5 percent ambition, which resulted in this study. The study consists of: 1. A literature study on innovation policy, the role of innovation within RWS, public procurement as instrument of innovation, performance measurement and the development of (key) performance indicators (KPI’s) 2. The development of the initial measurement instrument 3. Changes in the design of the measurement instrument 4. Data assessment 5. Validation of the developed measurement instrument The measurement scope of initial measurement instrument combines the definition of Public Procurement of Innovation (PPI) with the definition of IFP. This led to a result-oriented scope for measurement: “Did procurement activities lead to innovation or the development, testing, and/or offering and implementation of innovative solutions? ” In addition to the quantitative measurement on the spendings of IFP, a number of qualitative measurement factors for IFP were developed as well. The initial developed measurement method was considered to be too labour intensive and the value of the procured/developed innovation hard to quantify with objective indicators. Therefore, the scope for the measurement instrument was changed to an input/process-oriented scope which measures: “if the procurement of innovative solutions was an objective in the procurement and if possibilities for development, testing and/or offering and implementation of innovative solutions were provided by procurement activities”. This changed scope does not give an indication if IFP has led to the use of innovative solutions as was the case with the initial scope. The developed measurement method for the changed scope measures procurements in the procurement domain Civil Engineering and Infrastructure (CEI) based on Most Economical Advantageous Tendering (MEAT), which takes quality aspects into account next to the tendering price through the provision of a fictive reduction on the tendering price. An assessment on MEAT-criteria is used for the determination of the fictive reduction on tendering price, which in case of procurement domain CEI, represents the value of what RWS is willing to pay for the additional quality. This additional value can be delivered through innovative solutions and is therefore assumed to provide possibilities for offering and implementing innovative solutions, which makes it suitable as an indicator for IFP. The determination of the IFP spendings in the procurement domain Knowledge is based on expert judgement guided by five questions/criteria for IFP. If a procurement is considered as IFP the whole budget of the procurement is considered as spendings on IFP. The procurement domains Information Services (IS) and Business Management (BM) representing approximately 15 percent of the total procurement budget (TPB) of Rijkswaterstaat are not incorporated in the measurement.